chapter 8

Inventory under absorption costing includes only direct materials and direct labor.

false

Product cost includes all costs of the company.

false

f the number of units produced in a period is smaller than the number of units sold in period, absorption costing income will be higher than variable costing income.

false

Gross margin is to absorption costing as ____ is to variable costing.

contribution margin

Under a JIT system,

customer demand pulls units through the production line

What is the primary difference between variable and absorption costing?

inclusion of fixed factory overhead in product costs

JIT responds to the problems traditionally solved by carrying inventories by

negotiating long-term contracts with supplier to lock in low prices.

the inventory cost that can include processing costs, cost of insurance for shipping and unloading is called

ordering costs

The two major costs associated with inventory are

ordering costs and carrying costs

Which of the following is never included in product cost?

variable selling expense

Which of the following statements is true?

Absorption costing income exceeds variable costing income when units produced are greater than units sold.

Generally Accepted Accounting Principles (GAAP) require the use of which accounting method for external reporting?

absorption costing

When monthly production volume is constant and sales volume is less than production, income determined with variable costing procedures will

always be less than income determined using absorption costing.

Which of the following types of costs is a product cost for absorption costing but a period cost for variable costing?

fixed factory overhead per unit sold

All of the following costs are included in inventory under absorption costing except

fixed selling expense

The inventory cost that can include lost sales, cost of expediting, and cost of interrupted production is called

stock out costs

the inventory cost that can include lost sales, cost of expediting, and cost of interrupted production is called

stock out costs

A disadvantage of absorption costing is

that it is not a useful format for decision making.

If the number of units produced in a period is larger than the number of units sold in a period, absorption costing income will be higher than variable costing income.

true

Inventory costs under variable costing include only direct materials, direct labor, and variable factory overhead.

true

variable costing and absorption costing income statements may differ because of their treatment of fixed factory overhead

true