Chapter 21 Multiple Choice

The ______ method allows managers to increase operating income through production by producing more products than needed a) absorption costing b) variable costing c) direct costing d) marginal costing

a) absorption costing

absorption costing considers _____ as product costs a) variable manufacturing overhead b) sales salaries and commissions c) administrative office salaries d) advertising costs

a) variable manufacturing overhead

when production is greater than sales, the operating income will be higher under absorption costing than variable costing. Assume zero beginning and ending inventories. Which of the following gives the correct reason for the above statement? a) all costs incurred have been recorded as expenses b) a portion of the fixed manufacturing overhead is still in the ending finished goods inventory account under absorption costing c) all selling and administrative expenses have been recorded as period costs d) fixed manufacturing costs have not been considered when calculating the operating profits

b) a portion of the fixed manufacturing overhead is still in the ending finished goods inventory account under absorption costing

In its first year of business, Lakota Inc. produced 600 units and sold 400. If Lakota uses variable costing a) its operating income for the period will be higher than under absorption costing b) its operating income for the period will be lower than under absorption costing c) its value of ending finished goods inventory reported in the balance sheet will be higher than under absorption costing d) its operating income will be the same as under absorption costing

b) its operating income for the period will be lower than under absorption costing

which of the following costing methods charges all the manufacturing costs to the products? a) variable costing b) direct costing c) absorption costing d) contribution costing

c) absorption costing

For which of the following decisions is absorption costing most appropriate? a) decisions related to using the sales mix to maximize profitability b) decisions related to controlling short-term costs c) decisions related to setting sales prices in the long run d) decisions related to contribution margin

c) decisions related to setting sales prices in the long run

Which of the following statements is true of absorption costing? a) it considers variable selling and administrative costs as product costs b) it considers fixed selling and administrative costs as product costs c) it considers fixed manufacturing overhead cost as product cost d) it considers variable manufacturing overhead cost as period costs

c) it considers fixed manufacturing overhead costs as product cost

which of the following statements is true of variable costing? a) it considers variable manufacturing overhead as period costs b) it considers fixed manufacturing overhead as product costs c) it considers variable selling and administrative costs as product costs d) it considers fixed selling and administrative costs as period costs

d) it considers fixed selling and administrative costs as period costs

Luis Perez, a production supervisor at Serum Medical, Inc. uses variable costing for any cost control decision that he has to make. Which of the following is the reason for his choice? a) fixed costs are not relevant in the long run b) only variable costs are controllable in the short and long run c) absorption costing is not relevant for long-run decisions d) lower management does not usually have control over fixed costs

d) lower management does not usually have control over fixed costs

When there is no beginning finished goods inventory and all the goods that are produced are sold, the operating income... a) will be higher under absorption costing than variable b) will be lower under absorption costing than variable costing c) will be higher than the gross profit under variable costing d) will be the same for both absorption costing and variable costing

d) will be the same for both absorption costing and variable costing