Exam 15: Topic Focus Variable and Absorption Costing

The following table shows inventory balances, in units, for years 1, 2 and 3. Total fixed costs were $20,000 for each of the last three years. The units in year 1 beginning inventory were based on production of 500 units. Required: For each year, calculate the difference between absorption costing and variable costing operating income. Indicate which costing system has the highest income each year. Assume the LIFO method is used in year three.

The underlying principle that absorption costing satisfies is the

The difference between absorption and variable costing is the timing difference in the expensing of fixed overhead costs.

When using variable costing,fixed manufacturing overhead is treated as which of the following types of costs?

The process of classifying all the costs incurred in the production of a product is referred to as absorption costing.

The cost accumulation method required by generally accepted accounting principles is referred to as

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 costs 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 absorption costing, what was Walker’s operating income? A) $26,000 B) $6,000 C) $8,400 D) $10,000

When production volume exceeds sales volume,net income will be higher when using absorption costing than when using variable costing.

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

Which of the following is $\textbf{ not }$ a product cost?

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 absorption costing, what was Walker’s ending inventory on the balance sheet? A) $8,000 B) $28,000 C) $30,000 D) $30,400

Under variable costing,subtract variable costs from sales to arrive at

For each item below,identify whether the item applies to an absorption costing or variable costing income statement by marking an "X" in the appropriate column.

When the units produced equals the units sold

When the units produced exceeds the units sold

The only difference between variable and absorption costing is the treatment of variable overhead costs.

The matching principle states that expenses should be matched with the revenues they generate.

The costing method in which only variable product costs are accumulated in inventory is called

Absorption costing is also referred to as variable costing.

When the units produced equals the units sold