acc ch 6 reading

Brother Company uses variable costing. Their direct materials are $8, direct labor is $6 and total overhead is $5 of which $3 is variable. What is Brother Company's total unit cost?

$17

Commonwealth Company has the following unit costs: direct materials $2, direct labor $4, variable overhead $1, fixed overhead $3. Under the absorption costing method, what is the total unit cost?

10

Loudon Company has the following unit costs: direct materials $6, direct labor $3, variable overhead $2, fixed overhead $1. Under absorption costing, total unit cost is:

12

Hamilton Company has decided to use variable costing and has identified the following costs: direct materials $5, direct labor $10, variable overhead $3, fixed overhead $2. What is Hamilton Company's total unit cost?

18

If income under variable costing is $500,000, fixed overhead in ending FG inventory is $10,000 and fixed overhead in beginning FG inventory is $15,000 then income under absorption costing is:

495000

When units produced equals units sold, income under absorption costing will be (>,<,=) net income under variable costing.

=

Cost information from (neither, both) costing method(s) is helpful to management in setting prices.

both

An income statement which shows the excess of sales over variable costs is referred to as a

cm

An income statement which separately reports variable costs from fixed costs is known as a(n)

contribution format

Sales minus variable costs is called

contribution margin

Makum Company is using variable costing. Which of the items below would you see on Makum's income statement?

contribution margin net income variable expenses

Regardless of whether variable costing or absorption costing is used, if quantity produced differs from quantity sold, income will be (similar, different, indeterminable).

different

The main difference between absorption and variable costing is their treatment of

fixed overhead.

Under absorption costing, fixed overhead is allocated to products sold, so when production is greater than units sold, net income will be (greater, less) than income calculated under variable costing.

greater

When units produced are less than units sold, net income computed under variable costing will be

greater

Makum Company is using a traditional (absorption) costing system. Which of the items below would you see on Makum's income statement?

gross profit net income cost of goods sold

The formula to convert income from variable to absorption costing is:

income under variable costing plus fixed overhead in ending finished goods inventory minus fixed overhead in beginning finished goods inventory.

Managers should accept special orders if the special-order price

is greater than variable cost

When units produced are greater than units sold, variable costing net income will be_ than net income calculated under absorption costing.

less

If management incentives are tied to income under absorption costing, which of the following may occur (select all that apply):

possible obsolescence increased financing costs increased storage costs.

A contribution margin income statement shows:

sales-variable costs

When using absorption costing, all of the following are included in product costs (select all answers that are applicable):

variable overhead direct materials fixed overhead direct labor

Which costing method can be helpful to management in setting prices because it reflects full costs that sales must exceed for the company to be profitable?

Absorption costing

(absorption, variable) costing is acceptable for external reporting under U.S. GAAP.

Blank 1: Absorption

Differences in income between variable costing and absorption costing is due to

timing

Production planning is important because producing too much can lead to (excess, insufficient) inventory.

Blank 1: excess

Contribution margin is the excess of

Sales - Variable Costs

The costing system which is considered acceptable for external reporting under U.S. GAAP is

absorption costing

When using absorption costing when production is greater than sales, a portion of fixed overhead is allocated to:

ending inventory

When units produced equals units sold, income under variable costing as compared to net income under absorption costing will be

equal to

A system of rewarding managers by linking bonuses to income computed under absorption costing may result in:

excess inventory buildup

The key difference between absorption and variable costing is

fixed

over the __ run, selling prices must cover both fixed and variable costs.

long

True or false: When units produced are less than units sold, net income under absorption costing will be less than net income computed under variable costing.

true

The variable costing method includes all of the following costs (select all that apply):

variable overhead direct materials direct labor

format income statement reports variable costs separately from fixed costs.

Blank 1: contribution or contribution margin

When units produced are greater than units sold under variable costing, fixed overhead is an expense and results in (lower, higher) net income than under absorption costing.

lower

If management incentives are tied to income under absorption costing, which of the following may occur:

possible inventory obsolescence

Under the (absorption,variable) costing method only variable costs are assigned to products.

variable

Since service firms do not produce inventory, they should focus primarily on

variable costs.

Service firms should focus on _____ costs in managerial decisions.

variable