ACCT 320 Quiz 7

Which of the following is not a disadvantage of using variable costing as opposed to absorption costing?

A. Only variable costs are assigned to inventory, making poor management decisions (such as dropping a profitable product line) more likely to occur.

Which of the following correctly represents how to calculate absorption net income?

A. Variable net income + (Change in Inventory units x Fixed Overhead Rate)

Under absorption costing, which of the following costs are applied to manufactured inventory?

All manufacturing costs

The difference between variable net income and absorption net income may be computed by multiplying the change in inventory by the total overhead application rate.

False

Under absorption costing, a company can wait to recognize fixed costs as expense simply by selling more than they produced that period.

False

Under absorption costing, managers may have an incentive to manipulate earnings through production levels.

False

One of the advantages of variable costing is that this costing method may be used for management decisions as well as external reporting.

True

Under variable costing, a company expenses all fixed overhead costs in the same period that it incurs them.

True

Variable costing tends to make CVP analysis more difficult than absorption costing.

True