ACCT 101BF Chapter 19

True or False? It is not possible to convert reports prepared using variable costing to absorption costing reports.

False

An income statement under absorption costing includes all of the following:

direct materials, direct labor, variable overhead, fixed overhead

The contribution margin ratio is computed as: Contribution margin _____ Sales.

divided by

when units produced is greater than units sold, what happens with inventory

inventory increases

A special-order price that is less than fixed and variable costs can be accepted if the special-order price:

is greater than variable costs

When units sold are greater than units produced, what happens to inventory

it decreases

When units sold are greater than units produced, income under absorption costing is:

less than income under variable costing

Under absorption costing, when ___________ units are produced than are sold, some of the fixed overhead is assigned to ending inventory on the balance sheet.

more

When production is less than sales, the use of absorption costing:

produces a lower income than the use of variable costing

when units produced = units sold

there is no change in inventory

Managers cannot increase income under ___________ costing by merely increasing production without increasing sales.

variable

Geneva Company reports the following information for July: Sales$ 750,000 Variable cost of goods sold $225,000 Fixed cost of goods sold $100,000 What is the contribution margin

$525,000

If sales are $1,000,000 and contribution margin is $250,000, the contribution margin ratio is _____%.

25%

What does variable costing treat fixed overhead as?

A period cost

For long time pricing decisions, is absorption or variable costing a better method to use?

Absorption Costing is better

Sales mix decisions should be made using variable costing because:

Companies should emphasize products with the highest contribution margins if they want to increase profits.

Which of the following best describes costs assigned to the product under the absorption costing method? Direct labor (DL) Direct materials (DM) Variable selling and administrative(VSA) Variable manufacturing overhead (VOH) Fixed selling and administrative (FSA) Fixed manufacturing overhead (FOH)

DL, DM, VOH, and FOH.

How do you calculate total cost per unit under variable costing

Direct Materials + direct labor + variable overhead

How do you calculate total cost per unit under absorption costing

Direct Materials + direct labor + variable overhead + fixed manufacturing overhead

True or False? Variable costing is the only acceptable basis for both external reporting and tax reporting.

False

Which of the following statements is true regarding absorption costing?

It assigns all manufacturing costs to products.

How do you calculate fixed manufacturing overhead

Manufacturing over head/ # of units sold

When evaluating a special order, management should:

Only accept the order if the special-order price exceeds total variable product costs.

Which of the following statements is true regarding variable costing?

Only manufacturing costs that change in total with changes in production level are included in product costs.

True or False? Companies commonly use absorption costing for external reporting and tax reporting?

True

True or False? Do companies commonly use variable costing for internal reporting and business decisions?

True

What do Period Costs consist of

Variable selling & admin costs + fixed selling & admin costs

Over the long run, the starting point for setting selling prices should be established by adding the target markup to the _________ cost per unit.

absorption

When manager bonuses are tied to income computed under ___________ costing, these managers may be tempted (even enticed) to increase production, since doing so will increase income and their bonuses.

absorption

when units produced = units sold

absorption = variable

when units produced is greater than units sold, is absorption or variable income greater

absorption is greater than variable

The fixed overhead cost in ending finished goods inventory is ___________ the variable costing income when converting income under variable costing to income under absorption costing.

added to

Why does absorption costing produce a higher work in progress and finished goods inventory

because fixed manufacturing overhead is also a product cost

An income statement prepared using the ___________ highlights the impact of each cost element for income and is also useful in aiding managers in pricing.

contribution format