Chapter 7 MCs - ABSORPTION COSTING AND VARIABLE COSTING

c. fixed selling and administrative costs was lower.

A company prepares income statement using both absorption and variable costing methods. At the end of the period, a comparison of actual and budgeted results revealed that the actual net income was substantially above the budgeted net income, although actual sales, gross margin, and contribution margin approximated the budgeted figures. There were no beginning or ending inventories during the period. The most likely explanation of the increase in net income is that, compared to budget, actual a. selling price was higher. b. variable costs was lower. c. fixed selling and administrative costs was lower. d. fixed factory overhead costs was lower.

b. a change in the selling price of the products.

A company prepares income statement using both absorption and variable costing methods. During the year, the income amounts under the two methods are not equal. The difference in income figures could have been due to the following, except a. a change in the finished goods inventory. b. a change in the selling price of the products. c. an excess of production volume over sales volume. d. an excess of sales volume over production volume.

b. less than variable costing net income.

If production is less than sales (in units), then absorption costing net income will generally be a. greater than variable costing net income. b. less than variable costing net income. c. equal to variable costing net income. d. less than expected.

b. its profits fluctuate with sales.

If a firm uses variable costing, a. its product costs include variable selling and administrative costs. b. its profits fluctuate with sales. c. it calculates an idle facility variation. d. its product cost per unit changes because of changes in the number of units produced.

a. higher

In anticipation of an economic boom next period, the company increased its production to 140% of its normal capacity level. At the end of the period , finished goods inventory was 200% higher than the beginning inventory. If an absorption costing income statement is prepared instead of a variable costing income statement, income next period will be a. higher. b. lower. c. the same. d. deferred to next period.

c. in inventory multiplied by the fixed factory overhead cost per unit.

Income under absorption costing may differ from income under variable costing . the difference in income between the two costing methods is equal to the change in the quantity of all units a. produced multiplied by the variable manufacturing cost per unit. b. sold multiplied by the fixed factory overhead cost per unit. c. in inventory multiplied by the fixed factory overhead cost per unit. d. sold multiplied by the selling price per unit.

c. inventory fixed factory overhead costs in the beginning and ending finished goods inventories.

Net income computed using absorption costing can be reconciled to net income computed using variable costing by computing the difference between a. the gross profit under absorption costing and contribution margin under variable costing. b. the product cost per unit under the two costing methods. c. inventory fixed factory overhead costs in the beginning and ending finished goods inventories. d. the selling prices under the two costing methods.

b. the total fixed costs

On the variable costing income statement, the difference between the "contribution margin" and "income before income tax" is equal to a. the total operating expenses b. the total fixed costs c. fixed selling and administrative expenses d. the total variable costs

c. absorption costing, variable costing, and throughput costing income will be equal.

Once a company has reduced inventories to zero, a. throughput costing income will be higher than variable costing income. b. absorption costing income will be higher than throughput costing income. c. absorption costing, variable costing, and throughput costing income will be equal. d. the company has reached its breakeven point.

b. Increase in inventory times the fixed factory overhead cost per unit less the overapplied fixed factory overhead.

Refer to the original data. The difference in income under absorption and variable costing may be accounted for with the use of which computation? a. Difference between production and sales times the fixed factory overhead cost per unit. b. Increase in inventory times the fixed factory overhead cost per unit less the overapplied fixed factory overhead. c. Increase in inventory times the fixed FOH cost per unit. d. Difference between budgeted and actual production times the fixed FOH cost per unit less the overapplied fixed factory overhead.

a. an amount equal to the difference in the income amounts under both costing methods.

The cost of the ending inventory under absorption costing is higher than the cost of ending inventory under variable costing by a. an amount equal to the difference in the income amounts under both costing methods. b. an amount equal to the fixed overhead cost per unit. c. the amount equal to the fixed overhead cost charged to expense during the period. d. an amount computed by multiplying the units in the ending inventory by the fixed costs per unit.

b. absorption costing.

The inventory costing n method that treats direct manufacturing costs and indirect manufacturing costs, both variable and fixed, as inventoriable costs is called a. variable costing. b. absorption costing. c. conversion costing. d. perpetual inventory.

a. treats all costs as period costs except for direct materials.

Throughput costing a. treats all costs as period costs except for direct materials. b. is very suitable for companies where labor and overhead are variable costs. c results in higher income than does variable costing when production exceeds sales. d. penalizes low production and rewards high production.

c. fixed costs are incurred whether or not there is production, so it is not proper to allocate these costs to production and defer a current cost of doing business.

Under variable costing, all fixed costs are expensed during the current period because a. fixed costs are usually immaterial in amount. b. fixed costs are non- controllable costs. c. fixed costs are incurred whether or not there is production, so it is not proper to allocate these costs to production and defer a current cost of doing business. d. allocation of fixed costs is usually done arbitrarily and could lead to erroneous decision by management.

d. Only variable production costs

What costs are treated as product cost under variable costing? a. All variable costs b. All direct costs only c. All manufacturing costs d. Only variable production costs

b. Equal to income under absorption costing because the total fixed overhead costs expensed under both methods are the same.

What would income be if variable costing were used? a. Equal to income under absorption costing because that should always be the case. b. Equal to income under absorption costing because the total fixed overhead costs expensed under both methods are the same. c. An amount greater than that under absorption costing because production is equal to sales. d. An amount less than that under absorption costing because there is no change in inventory.

d. throughput costing will show the least income among the three (absorption, variable, and throughput) costing methods.

When production exceeds sales a. income under variable costing is greater than income under absorption costing. b. income under throughput costing is greater than income under variable costing. c. income under throughput costing is greater than income under absorption costing. d. throughput costing will show the least income among the three (absorption, variable, and throughput) costing methods.

b. Straight-line depreciation of factory equipment: Product Cost under Absorption, Yes; Product Cost under Variable, Yes.

Which of the following cost items is not correctly accounted for as a product cost under absorption and variable costing? a. Shipping costs: Product Cost under Absorption, No; Product Cost under Variable, No. b. Straight-line depreciation of factory equipment: Product Cost under Absorption, Yes; Product Cost under Variable, Yes. c. Factory supplies: Product Cost under Absorption, Yes; Product Cost under Variable, Yes. d. Direct materials: Product Cost under Absorption, Yes; Product Cost under Variable, Yes.

c. The variable and fixed components of manufacturing costs.

Which of the following must be known about a production process to institute a variable costing system? a. The direct and indirect costs related to production. b. Standard quantities and prices for all production inputs. c. The variable and fixed components of manufacturing costs. d. The capacity level or denominator level to be used in allocating fixed overhead costs.

b. When production is not equal to sales, income under absorption costing differs from income under variable costing due to the difference in treatment (product cost and period cost) of the fixed overhead cost under the two costing methods.

Which of the following statements is correct? a. In a variable costing income statement, sales revenue is typically higher than in absorption costing income statement. b. When production is not equal to sales, income under absorption costing differs from income under variable costing due to the difference in treatment (product cost and period cost) of the fixed overhead cost under the two costing methods. c. In variable costing system, fixed overhead cost is included as part of the cost of inventory. d. In an absorption costing system, fixed overhead cost is treated as a period cost.

c. In an income statement prepared as an internal report using the variable costing method, fixed FOH is used in the computation of operating income and contribution margin.

Which of the following statements is incorrect? a. In a variable costing income statement, variable selling and administrative expenses are used both in the computation of contribution margin and operating income. b. When using a variable costing system, the contribution margin (CM) discloses the excess of revenues over variable costs. c. In an income statement prepared as an internal report using the variable costing method, fixed FOH is used in the computation of operating income and contribution margin. d. Using absorption costing, fixed manufacturing overhead costs are best described as indirect product cost.

c. Selling and administrative costs, whether variable or fixed, is always treated as period costs under both the absorption and variable costing systems.

Which of the following statements is true? a. Depreciation expense is always a product cost. b. Depreciation expense is always a period cost. c. Selling and administrative costs, whether variable or fixed, is always treated as period costs under both the absorption and variable costing systems. d. Income under absorption costing is always greater than income under variable costing.

a. Absorption costing results in higher income when finished goods inventory increases.

Which of the following statements regarding absorption and variable costing is correct? a. Absorption costing results in higher income when finished goods inventory increases. b. Variable manufacturing costs are lower under absorption costing. c. Overhead costs are treated in the same manner under both variable and absorption costing methods. d. Profits are always the same under the two costing methods.

d. An increase in the remaining useful life of a factory equipment depreciated on the units-of-production method

Which of the following would most likely decrease the product cost per unit under variable costing? a. A decrease in the commission paid to salesmen for each unit sold b. An increase in the number of units sold c. A decrease in the remaining useful life of a factory equipment depreciated using the straight line method d. An increase in the remaining useful life of a factory equipment depreciated on the units-of-production method