Chapter 9 ACC 230
Which of the following costs is inventoried when using absorption costing?
C. Variable manufacturing costs
27) a. Explain the difference between the variable and absorption costing methods.
absorption costing - includes both fixed and variable manufacturing costs as INVENTORIABLE COSTS variable - only includes variable manufacturing costs as inventoriable costs
2) The gross-margin format is used for ________.
absorption costing income statement
b. Which method(s) are required for external reporting? For internal reporting?
external requires absorption costing, but companies can choose whichever method it chooses for internal reporting
21) Under variable costing, lease charges paid on the factory building is an inventoriable cost.
false - lease is a part of fixed MOH
Which of the following statements is true of absorption costing? A) Absorption costing allocates fixed manufacturing overhead to actual units produced during the period. B) Absorption costing carries over nonmanufacturing costs to the future periods. C) Absorption costing shows the same level of profit as variable costing irrespective of the level of inventories. D) Absorption costing allocates total manufacturing cost using the budgeted level of production for a particular year.
Absorption costing allocates fixed manufacturing overhead to actual units produced during the period.
When comparing the operating incomes between absorption costing and variable costing, and ending finished inventory exceeds beginning finished inventory, it may be assumed that ________.
) absorption costing operating income exceeds variable costing operating income
4) Which of the following statements is true of gross-margin format of the income statement? A) It distinguishes between manufacturing and nonmanufacturing costs. B) It distinguishes variable costs from fixed costs. C) It is used for variable costing. D) It calculates the contribution margin from sales.
A) It distinguishes between manufacturing and nonmanufacturing costs.
7) In ________, fixed manufacturing costs are included as inventoriable costs.
Absorption costing
8) ________ method includes fixed manufacturing overhead costs as inventoriable costs.
Absorption costing
5) ________ is subtracted from sales while calculating contribution margin.
Direct labor in factory
5) Which of the following is true of absorption costing?
It includes fixed manufacturing overhead as an inventoriable cost.
Which of the following is true of variable costing?
It treats direct manufacturing costs as a product cost.
9) Which of the following costs will be treated as period costs under absorption costing? A) raw materials used in the production B) sales commission paid on sale of product C) depreciation on factory equipment D) rent for factory building
Sales commission paid on sale of product
11) ________ is a method of inventory costing in which only variable manufacturing costs are included as inventoriable costs.
Variable costing
________ is a method of inventory costing in which all variable manufacturing costs (direct and indirect) are included as inventoriable costs and all fixed manufacturing costs are excluded.
Variable costing
20) The unit cost of a product is always higher in variable costing than in absorption costing.
false - unit cost of product is always higher in absorption costing because it includes fixed MOH
13) The only difference between variable and absorption costing is the expensing of ________.
fixed manufacturing costs
The difference between operating incomes under variable costing and absorption costing centers on how to account for ________.
fixed manufacturing costs
15) If the unit level of inventory increases during an accounting period, then ________.
more operating income will be reported under absorption costing than variable costing
12) Variable costing regards fixed manufacturing overhead as a(n) ________.
period cost
14) An favorable production-volume variance occurs when ________.
production exceeds the denominator level
One possible means of determining the difference between operating incomes for absorption costing and variable costing is by ________.
subtracting fixed manufacturing overhead in beginning inventory from fixed manufacturing overhead in ending inventory
22) Under both variable and absorption costing, research and development costs are period costs.
true
Job costing system is an example of absorption costing.
true
The main difference between variable costing and absorption costing is the way in which fixed manufacturing costs are accounted for.
true
The two most common methods of costing inventories in manufacturing companies are variable costing and absorption costing.
true
1) The contribution-margin format is used for ________.
variable costing income statement
6) ________ are subtracted from sales to calculate gross margin.
variable manufacturing costs
1) Which of the following costs is inventoried when using variable costing? A) rent on factory building B) electricity consumed in manufacturing process C) sales commission paid on each sale D) advertising costs incurred for the product
B electricity conumed in manufacturing process
3) Which of the following statements is true of contribution-margin format of the income statement? A) It is used for absorption costing. B) It highlights the lump sum of fixed manufacturing costs. C) It distinguishes manufacturing costs from nonmanufacturing costs. D) It calculates gross margin.
B) It highlights the lump sum of fixed manufacturing costs.
18) Which of the following inventory costing methods shown below is required by GAAP (Generally Accepted Accounting Principles) for external financial reporting?
absorption costing
________ is a method of inventory costing in which all variable manufacturing costs and all fixed manufacturing costs are included as inventoriable costs.
absorption costing
10) Under absorption costing, fixed manufacturing costs ________.
are inventoriable costs