Question 1

The difference between absorption costing and variable costing is the treatment of fixed manufacturing overhead.

Accepted Answer

A) True 
 B)False

Question 2

When production is greater than sales

Accepted Answer

A) Net income under absorption costing will be greater than or less than net income under variable costing depending on the selling and administration costs. 
B) Net income under absorption costing will be equal to net income under variable costing. 
C) Net income under absorption costing will be less than net income under variable costing. 
D) Net income under absorption costing will be greater than net income under variable costing. 
A) Net income under absorption costing will be greater than or less than net income under variable costing depending on the selling and administration costs. 
B) Net income under absorption costing will be equal to net income under variable costing. 
C) Net income under absorption costing will be less than net income under variable costing. 
D) Net income under absorption costing will be greater than net income under variable costing.

Question 3

Which of the following statements about absorption costing is true?

Accepted Answer

A) As manufacturing output increases, the per unit manufacturing cost remains constant. 
B) As manufacturing output increases, the per unit manufacturing cost decreases. 
C) As manufacturing output increases, the per unit manufacturing cost increases. 
D) As manufacturing output increases, the change in the per unit manufacturing cost is negated by the change in the per unit selling cost. 
A) As manufacturing output increases, the per unit manufacturing cost remains constant. 
B) As manufacturing output increases, the per unit manufacturing cost decreases. 
C) As manufacturing output increases, the per unit manufacturing cost increases. 
D) As manufacturing output increases, the change in the per unit manufacturing cost is negated by the change in the per unit selling cost.

Question 4

Use the following information for items 
Obama Company sells its product for $25 per unit.During 2012, it produced 20,000 units and sold 15,000 units (there was no beginning inventory).Costs per unit are: direct materials $5, direct labour $4, and variable overhead $3.Fixed costs are: $300,000 manufacturing overhead, and $50,000 selling and administrative expenses.
-Cost of goods sold under absorption costing is

Accepted Answer

A) 180,000. 
B) $405,000. 
C) $442,500. 
D) $540,000. 
A) 180,000. 
B) $405,000. 
C) $442,500. 
D) $540,000.

Question 5

Net income under variable costing is unaffected by changes in production levels.

Accepted Answer

A) True 
 B)False

Question 6

How are fixed manufacturing costs handled under variable costing?

Accepted Answer

A) They are subtracted from the variable cost of goods sold to determine the ending inventory value that will be recorded on the Balance Sheet. 
B) They are not recorded, which is why variable costing is not used for external reporting. 
C) They are recorded directly on the Balance Sheet. 
D) They are treated as period costs. 
A) They are subtracted from the variable cost of goods sold to determine the ending inventory value that will be recorded on the Balance Sheet. 
B) They are not recorded, which is why variable costing is not used for external reporting. 
C) They are recorded directly on the Balance Sheet. 
D) They are treated as period costs.

Question 7

Selling and administrative costs are period costs under both absorption and variable costing.

Accepted Answer

A) True 
 B)False

Question 8

Under variable costing:

Accepted Answer

A) Only the quantity of products sold determines cost of goods sold. 
B) Only the quantity of products produced determines cost of goods sold. 
C) Both the quantity of products produced and sold determines cost of goods sold. 
D) Neither the quantity of products produced or sold determines cost of goods sold. 
A) Only the quantity of products sold determines cost of goods sold. 
B) Only the quantity of products produced determines cost of goods sold. 
C) Both the quantity of products produced and sold determines cost of goods sold. 
D) Neither the quantity of products produced or sold determines cost of goods sold.

Question 9

Some fixed manufacturing costs of the current period are deferred to future periods through ending inventory under variable costing.

Accepted Answer

A) True 
 B)False

Question 10

Net income under variable costing is closely tied to changes in sales levels.

Accepted Answer

A) True 
 B)False

Question 11

When units produced exceed units sold, income under absorption costing is higher than income under variable costing.

Accepted Answer

A) True 
 B)False

Question 12

Under absorption costing when inventory increases in a year:

Accepted Answer

A) There are more fixed costs charged to income. 
B) There are less fixed costs charged to income. 
C) Fixed costs in inventory remain the same regardless of inventory changes. 
D) Fixed costs in inventory are reduced. 
A) There are more fixed costs charged to income. 
B) There are less fixed costs charged to income. 
C) Fixed costs in inventory remain the same regardless of inventory changes. 
D) Fixed costs in inventory are reduced.

Question 13

Fixed manufacturing costs are not charged to the product under variable costing.

Accepted Answer

A) True 
 B)False

Question 14

Companies that use just-in-time processing techniques will have significant differences between absorption and variable costing net income.

Accepted Answer

A) True 
 B)False

Question 15

Expected sales for next year for the Brady Division are 120,000 units.Drew Carey, the manager of the Brady Division, is under pressure to improve the performance of the Division.As he plans for next year, he has to decide whether to produce 120,000 units or 140,000 units.The Brady Division will have higher net income, if Drew Carey decides to

Accepted Answer

A) produce 140,000 units if income is measured under absorption costing. 
B) produce 140,000 units if income is measured under variable costing. 
C) produce 120,000 units if income is measured under absorption costing. 
D) produce 120,000 units if income is measured under variable costing. 
A) produce 140,000 units if income is measured under absorption costing. 
B) produce 140,000 units if income is measured under variable costing. 
C) produce 120,000 units if income is measured under absorption costing. 
D) produce 120,000 units if income is measured under variable costing.

Question 16

When absorption costing is used for external reporting, variable costing can still be used for internal reporting purposes.

Accepted Answer

A) True 
 B)False

Question 17

Use the following information for items 
Obama Company sells its product for $25 per unit.During 2012, it produced 20,000 units and sold 15,000 units (there was no beginning inventory).Costs per unit are: direct materials $5, direct labour $4, and variable overhead $3.Fixed costs are: $300,000 manufacturing overhead, and $50,000 selling and administrative expenses.
-Ending inventory under variable costing is

Accepted Answer

A) $ 60,000. 
B) $ 240,000. 
C) $ 360,000. 
D) $ 410,000. 
A) $ 60,000. 
B) $ 240,000. 
C) $ 360,000. 
D) $ 410,000.

The difference between absorption costing and variable costing is the treatment of fixed manufacturing overhead.

When production is greater than sales

Which of the following statements about absorption costing is true?

Net income under variable costing is unaffected by changes in production levels.

How are fixed manufacturing costs handled under variable costing?

Selling and administrative costs are period costs under both absorption and variable costing.

Under variable costing:

Some fixed manufacturing costs of the current period are deferred to future periods through ending inventory under variable costing.

Net income under variable costing is closely tied to changes in sales levels.

When units produced exceed units sold, income under absorption costing is higher than income under variable costing.

Under absorption costing when inventory increases in a year:

Fixed manufacturing costs are not charged to the product under variable costing.

Companies that use just-in-time processing techniques will have significant differences between absorption and variable costing net income.

When absorption costing is used for external reporting, variable costing can still be used for internal reporting purposes.

Managerial Accounting

Managerial Cost Concepts and Cost Behaviour Analysis

Job Order Costing

Process Costing

Activity-Based-Costing

Cost-Volume-Profit

Incremental Analysis

Pricing

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

Planning for Capital Investments

Filters

Exam 8: Variable Costing: a Decision-Making Perspective

The difference between absorption costing and variable costing is the treatment of fixed manufacturing overhead.

When production is greater than sales

Which of the following statements about absorption costing is true?

Net income under variable costing is unaffected by changes in production levels.

How are fixed manufacturing costs handled under variable costing?

Selling and administrative costs are period costs under both absorption and variable costing.

Under variable costing:

Some fixed manufacturing costs of the current period are deferred to future periods through ending inventory under variable costing.

Net income under variable costing is closely tied to changes in sales levels.

When units produced exceed units sold, income under absorption costing is higher than income under variable costing.

Under absorption costing when inventory increases in a year:

Fixed manufacturing costs are not charged to the product under variable costing.

Companies that use just-in-time processing techniques will have significant differences between absorption and variable costing net income.

When absorption costing is used for external reporting, variable costing can still be used for internal reporting purposes.

Managerial Accounting

Managerial Cost Concepts and Cost Behaviour Analysis

Job Order Costing

Process Costing

Activity-Based-Costing

Cost-Volume-Profit

Incremental Analysis

Pricing

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

Planning for Capital Investments

Filters