Chapter 7

Frames, Inc. manufactures large wooden picture frames. Each frame requires $19 of direct materials and $40 of direct labor. Variable manufacturing overhead cost is $9 per frame produced. The unit product cost of each frame using variable costing is $

$68 (19+40+9)

fixed manufacturing overhead costs are included as part of Work in Process inventory under a. absorption cost only b. neither variable nor absorption costing c. variable costing only d. both variable and absorption costing

a

When using ______ costing, operating income can change from one month to the next, even when sales and costs do not change.

absorption

The two general costing approaches used by manufacturing companies to prepare income statements are _____________ costing and _____________ costing.

absorption costing and variable costing

Under absorption costing product costs consist of ______ costs. a. all manufacturing and selling and admin b. only variable manufacturing c. both variable and fixed manufacturing d. only fixed manufacturing

c

Put'er There manufactures baseball gloves. Each glove requires $22 of direct materials and $18 of direct labor. Variable manufacturing overhead cost is $7 per unit. Variable selling and administrative costs are $11 per unit sold and fixed selling and administrative costs are $13,200. The unit product cost using variable costing is Blank______ per unit. a. $58 b. $81.75 c. $47 d. $70.75

c. $47 (25+18+7)

The difference between reported net income on variable costing and absorption costing income statements is based on how a. expenses are organized b. the statements are formatted c. fixed overhead is accounted for d. cost classifications are defined

c. fixed overhead is accounted for

Variable costing income statements are based upon a ______ format.

contribution

Absorption and variable costing net income are usually different due to the accounting for ______.

fixed manoh

Under absorption costing, _________ manufacturing overhead costs appear to be __________ with respect to the number of units sold, but they are not.

fixed, variable

variable costing treats manufacturing overhead as a(n) _____ cost.

period

when inventory increases, which costing method generally results in higher net income?

the 2 costing methods would show the same net income

true or false: under absorption costing, fixed overhead is treated like a variable cost because a portion of the total cost is allocated to each unit produced, rather than being expensed as one large sum

true

which of the following statements are correct regarding income statements prepared under variable and absorption costing? a. absorption costing categorizes costs based on cost behavior b. both income statements include product and period costs c. reported net income on the statements often differ d. the difference between the statements is how total manufacturing overhead is accounted for

b and c

Absorption costing net operating income may not agree with the net operating income calculated for CVP analysis due to the way in which ______ is handled in absorption costing

fixed manufacturing overhead

Under variable costing the cost of a unit of inventory does not contain: a. direct materials b. fixed manufacturing overhead c. variable manufacturing overhead d. direct labor

b

for external reporting, income statements are generally prepared using _________ costing, while _____________ costing is used for internal decision making purposes.

absorption, variable