Chapter 7 Learnsmart

fixed manufacturing overhead costs are expensed as units are sold as part of cost of goods sold under ---- costing, and expensed in full with period costs under ----- costing

absorption, variable

when using variable costing, fixed manufacturing overhead is

expensed in the period incurred

selling and administrative expenses

are always treated as period costs

absorption costing treats fixed manufacturing overhead as a ----- cost

product

when allocating fixed manufacturing overhead cost to units under absorption costing, the total fixed overhead costs must be divided by the number of units -----

produced

net operating income under absorption costing is generally ----- net operating income under variable costing in periods in which inventory increases

higher then

Under both variable costing and absorption costing, variable and fixed selling and administrative costs are treated as ___ costs.

period

a part or activity within an organization about which managers would like cost, revenue or profit data is called a(n) -----

segment

decision-making problems that could occur when using absorption costing include innappropriate ---- decisions and decisions made to --- products that are in fact profitable

pricing, drop

An absorption costing income statement calculates:

Gross margin by deducting cost of goods sold from sales

variable costing income statements separate ---- expenses from ---- expenses

fixed, variable

using variable costing and the contribution approach for internal decision making ----

- supports decision making - facilitates explaining changes in net income - enables CVP analysis

absorption costing and variable costing net operating income will be equal when

- there is no beginning and no ending inventory - the number of units produced equals the number of units sold

direct costing or marginal costing are other terms for ---- costing

variable

on an absorption costing income statement, selling and admin expenses

- equal the amounts reported on a variable costing income statement - are reported as a single amount

variable costing income statements are based upon a --- format

contribution margin

variable costing net income may be computed by multiplying the number of units sold by the ---- --- per unit and subtracting total ---- expenses

contribution margin, fixed

when inventory increase, absorption costing net operating income is higher than variable costing net income due to the fixed manufacturing overhead ----

deferred in the inventory account on the balance sheet

the difference between reported net income on variable costing and absorption costing income is based on how -----

fixed overhead is accounted for

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

the number of units produced does not affect net operating income when using --- costing

variable

the two general costing approaches used by manufacturing companies to prepare income statements are ---- costing and ---- costing

variable and absorption