ACC-121 CH 19 Variable Costing and Analysis

A special-order price that is less than fixed and variable costs, can be accepted if the special-order price is:

Greater than variable costs.

Units: Production = Sales Production > Sales Production < Sales

Income Effect: Absorption = Sales Absorption > Sales Absorption < Sales

The variable costing income statement differs from the absorption costing income statement in that:

It classifies expenses based on cost behavior rather than function.

Under absorption costing when _______ units are produced than sold, some of the fixed overhead is assigned to ending inventory on the balance sheet.

More

Managers cannot increase income under _______ costing by merely increasing production without increasing sales.

Variable

An income statement prepared using the __________ highlights the impact of each cost element for income and is also useful in aiding managers in pricing.

Absorption costing

Over the long run, the starting point for selling prices should be established by adding the target markup to the _______ cost per unit.

Absorption

When managers bonuses are tied to income produced under _______ costing, these managers may be tempted (even enticed) to increase production, since doing so will increase income and their bonuses.

Absorption

Variable cost per unit includes:

Direct materials, direct labor, and only variable overhead.

The variable costing income statement shows _______ instead of gross margin.

Contribution margin

An income statement under absorption costing includes all of the following:

Direct Materials Direct Labor Variable Overhead Fixed Overhead

Absorption cost per unit includes:

Direct materials, direct labor, and all overhead.