Chat with AIExam 15: Topic Focus Variable and Absorption Costing
Describe the format for a variable costing income statement.
(39) 
VerifiedA variable costing income statement begins with sales.All variable costs product and period are deducted from sales to arrive at contribution margin.Finally,fixed costs,both product and period,are deducted to arrive at operating income.
What managerial behavior does variable costing render ineffective?
(38) VerifiedUsing variable costing prevents managers from making their income higher by producing more units than are sold, thus moving some fixed cost from the income statement to the balance sheet for the period.
When a company’s production volume and sales volume vary from one year to the next, income will be harder to forecast under absorption costing, since the fixed cost per unit changes with the number of units produced. Variable costing is better for purposes of forecasting and decision making. A disadvantage of absorption costing is that it encourages managers to engage in gaming behavior in an attempt to affect the income statement. That is, if a manager were to ensure that production is always greater than sales, a portion of the manufacturing overhead cost would always reside in inventory rather than being expensed on the income statement. Making more units spreads the overhead costs over more units, reducing the cost per unit. This improves income, but wastes resources if the extra units are not needed.
Absorption costing is also referred to as
(37) VerifiedB
In variable costing,fixed manufacturing overhead is treated as a product cost.
(40) Etters Manufacturing Company has provided the following financial data for its most recent month.
Required:
Prepare an income statement using a variable costing format.
Required:
Prepare an income statement using a variable costing format.
(40) Monroe Corporation produced 20,000 units during the last period. The company incurred the following total costs to produce these units.
Required:
a. Under the absorption costing method, what is the average unit product cost?
b. Under the variable costing method, what is the average unit product cost?
Required:
a. Under the absorption costing method, what is the average unit product cost?
b. Under the variable costing method, what is the average unit product cost?
(38) The underlying principle that absorption costing satisfies is the historical cost principle.
(37) Based on the matching principle,all product costs flow through
(42) In absorption costing,all manufacturing costs are considered to be
(48) The difference between absorption and variable costing is the timing difference in the expensing of variable overhead costs.
(45) Which of the following items is more complicated for a manufacturing company than for a retail operation?
(44) Absorption costing is used for managerial accounting,but is not allowed for reporting in accordance with generally accepted accounting principles.
(38) To make predictions about costs and income,you must first separate costs by their behavior,
(36) Walker’s Manufacturing began its operations on January 1 of the current year. Walker produced 10,000 units during the year, sold 8,000 units at an average cost of $22 per unit, and had 2,000 units in ending inventory. Variable production cost were $14 per unit, variable selling expenses were $2 per unit, fixed overhead totaled $12,000, and fixed selling and administrative expenses totaled $30,000. Under variable costing, what was Walker’s operating income?
A) $26,000
B) $6,000
C) $8,400
D) $10,000
(37) Variable costing is acceptable for which of the following purposes?
(25) When using variable costing,which of the following costs are treated as period costs?
(38) Based on the matching principle,all product cost flow through
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