CH7 Smartbook

Selling and administrative expenses are ______ on both the absorption and variable costing income statements.

the same amount

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

When inventory decreases, cost of goods sold under absorption costing will generally be ______ cost of goods sold under variable costing.

more than

Variable costing treats _____ manufacturing costs as product costs

only variable

Selling and Administrative expenses are

ALWAYS treated as Period Costs

Net income computed under ______ costing may not agree with the results of CVP analysis.

Absorption Reason: CVP analysis requires that costs be broken down into fixed and variable components.

When inventory increases, which costing method generally results in higher net income?

Absorption Cost Reason: When inventory increases, some fixed manufacturing costs that are expensed under variable costing go to inventory under absorption costing, giving absorption costing a higher net income.

Fixed manufacturing overhead costs are included as part of Work in Process inventory under ______.

Absorption costing only

Costs are categorized by function when using _____ costing, and by behavior when using _____ costing

absorption, variable

True or false: Segment margin is most useful in decisions involving short-run changes in sales volume such as pricing special orders.

false Reason: Contribution margin is most useful in decisions involving short-run changes in sales volume such as pricing special orders. Segment margin is most useful in major decisions that affect capacity such as dropping a segment.

When units sold exceed units produced, net income under variable costing will generally be _______ net income under absorption costing.

higher than

The company-wide break-even sales will always be ______ the sum of the segment break-even sales.

higher than Reason: Company-wide will always be higher because segment break-even does not include common fixed expenses.

When units produced exceed units sold, net income will generally be ______ costing.

higher under absorption costing than under variable