Accounting M5

Absorption Costing

A costing method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed manufacturing overhead—in unit product costs.

Variable Costing

A costing method that includes only variable manufacturing costs—direct materials, direct labor, and variable manufacturing overhead—in unit product costs.

traceable fixed cost

A fixed cost that is incurred because of the existence of a particular business segment and that would be eliminated if the segment were eliminated

common fixed cost

A fixed cost that supports more than one business segment, but is not traceable in whole or in part to any one of the business segments.

Segment Margin

A segment's contribution margin less its traceable fixed costs. It represents the margin available after a segment has covered all of its own traceable costs.

Selling and administrative expenses are treated as period costs under variable costing. Meaning, the costs are expensed entirely in the income statement each period.

Are selling and administrative expenses treated as product costs or as period costs under variable costing?

True

Assuming the LIFO inventory flow assumption, if production equals sales for the period, absorption costing and variable costing will produce the same net operating income.

be greater than the net operating income under variable costing

George Corporation has o beginning inventory and manufactures a single product. If the number of units produced exceeds the number of units sold, then net operating income under the absorption method for the year will:

absorption costing but not variable costing

The term gross margin is used in reports prepared using:

True

Under absorption costing, fixed manufacturing overhead is treated as a product cost.

Option A

Under absorption costing, product costs include: Option: Variable manufacturing overhead -----Fixed manufacturing overhead A Yes -----Yes B No -----No C Yes -----No D No -----Yes

True

Under absorption costing, the profit for a period is affected by a change in the number of units of finished goods in inventory.

True

Under variable costing, products costs consist of direct materials, direct labor, and variable manufacturing overhead.

variable manufacturing overhead cost

Under variable costing, which of the following is not expensed in its entirety in the period in which it is incurred?

Variable costing income statements are clear and easier to understand as a result of this. The number of units produced does not affect net operating income, so the change in net operating income moves in correlation with sales. Separating the manufacturing overhead costs from the product costs prevents the amount of units produced from affecting the net operating income.

What are the arguments in favor of treating fixed manufacturing overhead costs as period costs?

The difference between variable costing and absorption costing is how each method accounts for fixed manufacturing overhead costs. Fixed manufacturing overhead costing is treated as a product cost in absorption costing in the work in process inventories and as a periodic expense in variable costing and taken immediately to the income statement as periodic expense.

What is the basic difference between absorption costing and variable costing?

False

When viewed over the long term, cumulative net operating income will be the same for variable and absorption costing if ending inventories exceeds beginning inventories.

Option B

Which of the following costs at a manufacturing company would be treated as a product cost under both absorption costing and variable costing? Option: Variable manufacturing overhead----- Variable selling and administrative expense A Yes -----Yes B Yes -----No C No -----Yes D No -----No

segment

any part or activity of an organization about which managers seek cost, revenue, or profit data