Deck 21: Variable Costing for Management Analysis

Question 1

In variable costing, the cost of products manufactured is composed of only those manufacturing costs that increase or decrease as the volume of production rises or falls.

Answer 1

True

Question 2

The taxes on the factory superintendent's salary would be included as part of the cost of products manufactured under the variable costing concept.

Answer 2

False

Question 3

The factory superintendent's salary would be included as part of the cost of products manufactured under the absorption costing concept.

Answer 3

True

Question 4

Property taxes on a factory building would be included as part of the cost of products manufactured under the absorption costing concept.

Question 5

On the variable costing income statement, deduction of the variable cost of goods sold from sales yields gross profit.

Question 6

On the variable costing income statement, all of the fixed costs are deducted from the contribution margin.

Question 7

Electricity purchased to operate factory machinery would be included as part of the cost of products manufactured under the absorption costing concept.

Question 8

On the absorption costing income statement, deduction of the cost of goods sold from sales yields contribution margin.

Question 9

In variable costing, fixed costs do not become part of the cost of goods manufactured, but they are considered an expense of the period.

Question 10

Variable costing is also known as direct costing.

Question 11

In determining cost of goods sold, two alternate costing concepts can be used: absorption costing and variable costing.

Question 12

Under absorption costing, the cost of finished goods includes direct materials, direct labor, and all factory overhead.

Question 13

On the absorption costing income statement, deduction of the cost of goods sold from sales yields gross profit.

Question 14

On the variable costing income statement, variable selling and administrative expenses are deducted from manufacturing margin to yield contribution margin.

Question 15

Under absorption costing, the cost of finished goods includes only direct materials, direct labor, and variable factory overhead.

Question 16

On the variable costing income statement, deduction of the variable cost of goods sold from sales yields manufacturing margin.

Question 17

On the absorption costing income statement, deduction of the cost of goods sold from sales yields net profit.

Question 18

In determining cost of goods sold, two alternate costing concepts can be used: direct costing and variable costing.

Question 19

The absorption costing income statement does not distinguish between variable and fixed costs.

Question 20

Fixed factory overhead costs are included as part of the cost of products manufactured under the absorption costing concept.

Question 21

Management may use both absorption and variable costing methods for analyzing a particular product.

Question 22

For a period during which the quantity of product manufactured is less than the quantity sold, operating income reported under absorption costing will be smaller than operating income reported under variable costing.

Question 23

For a period during which the quantity of inventory at the end is smaller than that at the beginning, operating income reported under variable costing will be smaller than operating income reported under absorption costing.

Question 24

Changes in the quantity of finished goods inventory, caused by differences in the levels of sales and production, directly affect the amount of operating income reported under absorption costing.

Question 25

Property tax expense is an example of a controllable cost for the supervisor of a manufacturing department.

Question 26

Under absorption costing, increases or decreases in operating income due to changes in inventory levels could be misinterpreted to be the result of operating efficiencies or inefficiencies.

Question 27

On the variable costing income statement, variable costs are deducted from contribution margin to yield manufacturing margin.

Question 28

For an accounting period during which the quantity of inventory at the end is smaller than the quantity at the beginning, operating income reported under variable costing will be larger than operating income reported under absorption costing.

Question 29

For a period during which the quantity of inventory at the end equals the inventory at the beginning, operating income reported under variable costing will be smaller than operating income reported under absorption costing.

Question 30

For a period during which the quantity of product manufactured is less than the quantity sold, operating income reported under absorption costing will be larger than operating income reported under variable costing.

Question 31

Under absorption costing, the amount of income reported from operations can be increased by producing more units than are sold.

Question 32

For a period during which the quantity of inventory at the end is larger than that at the beginning, operating income reported under variable costing will be larger than operating income reported under absorption costing.

Question 33

The contribution margin and the manufacturing margin are usually equal.

Question 34

For a period during which the quantity of inventory at the end is larger than that at the beginning, operating income reported under variable costing will be smaller than operating income reported under absorption costing.

Question 35

On the variable costing income statement, the amounts representing the difference between the contribution margin and operating income are the fixed manufacturing costs and fixed selling and administrative expenses.

Question 36

For a period during which the quantity of product manufactured equals the quantity sold, operating income reported under absorption costing will equal the operating income reported under variable costing.

Question 37

For a period during which the quantity of product manufactured exceeds the quantity sold, operating income reported under absorption costing will be larger than operating income reported under variable costing.

Question 38

For a period during which the quantity of product manufactured exceeds the quantity sold, operating income reported under absorption costing will be smaller than operating income reported under variable costing.

Question 39

For a period during which the quantity of product manufactured equals the quantity sold, operating income reported under absorption costing will be smaller than the operating income reported under variable costing.

Question 40

For a period during which the quantity of inventory at the end equals the inventory at the beginning, operating income reported under variable costing will equal operating income reported under absorption costing.

Question 41

Managers in service firms do not find contribution margin reports useful because their firms do not sell inventory.

Question 42

Service firms can only have one activity base for analyzing changes in costs.

Question 43

In a service firm, it may be necessary to have several activity bases to properly match the change in costs with the changes in various activities.

Question 44

Which of the following terms is commonly used to describe the concept whereby the cost of manufactured products is composed of direct materials cost, direct labor cost, and variable factory overhead cost?

A)absorption costing
B)differential costing
C)standard costing
D)variable costing

Question 45

Direct labor cost is an example of a controllable cost for the supervisor of a manufacturing department.

Question 46

Which of the following terms is commonly used to describe the concept whereby the cost of manufactured products is composed of direct materials cost, direct labor cost, and all factory overhead cost?

A)standard costing
B)variable costing
C)absorption costing
D)marginal costing

Question 47

In evaluating the performance of salespersons, the salesperson with the highest level of sales dollars should be evaluated as the best performer.

Question 48

Variable costing is appropriate only for manufacturing firms, not for service firms.

Question 49

The contribution margin ratio is computed as contribution margin divided by sales.

Question 50

Sales mix is generally defined as the relative distribution of sales among the various products sold.

Question 51

In the long run, for a business to remain in operation, the revenues from products sold should normally cover all costs and expenses and provide a reasonable income.

Question 52

Another name for variable costing is

A)indirect costing
B)process costing
C)direct costing
D)differential costing

Question 53

EBITDA represents operating income after income tax, depreciation, and amortization have been deducted.

Question 54

In the short run, the selling price of a product should normally not be less than the variable costs and expenses of making and selling it.

Question 55

If the ability to sell and the amount of production facilities devoted to each of two products are equal, it is profitable to increase the sales of that product with the highest contribution margin.

Question 56

For short-run production planning, information in the absorption costing format is more useful to management than is information in the variable costing format.

Question 57

EBITDA removes a significant fixed and noncash cost from the operating income number and may approximate the contribution margin.

Question 58

For short-run production planning, information in the variable costing format is more useful to management than is information in the absorption costing concept format.

Question 59

For internal decision-making purposes, managers may use EBITDA as a substitute for the contribution margin.

Question 60

If the ability to sell and the amount of production facilities devoted to each of two products are equal, it is profitable to increase the sales of that product with the lowest contribution margin.

Question 61

The amount of income under absorption costing will equal the amount of income under variable costing when units manufactured

A)exceed units sold
B)equal units sold
C)are less than units sold
D)are equal to or greater than units sold

Question 62

Which of the following would be included in the cost of a product manufactured according to absorption costing?

A)advertising expense
B)sales salaries
C)depreciation expense on factory building
D)office supplies costs

Question 63

The amount of income under absorption costing will be more than the amount of income under variable costing when units manufactured

A)exceed units sold
B)equal units sold
C)are less than units sold
D)are equal to or greater than units sold

Question 64

Under variable costing, which of the following costs would be included in finished goods inventory?

A)neither variable nor fixed factory overhead cost
B)both variable and fixed factory overhead cost
C)only variable factory overhead cost
D)only fixed factory overhead cost

Question 65

The level of inventory of a manufactured product has increased by 4,000 units during a period. The following data are also available: The effect on operating income if absorption costing is used rather than variable costing would be a

A)$44,000 decrease
B)$44,000 increase
C)$64,000 increase
D)$64,000 decrease

Question 66

The level of inventory of a manufactured product has increased by 8,000 units during a period. The following data are also available: The effect on operating income if absorption costing is used rather than variable costing would be a(n)

A)$80,000 decrease
B)$80,000 increase
C)$104,000 increase
D)$104,000 decrease

Question 67

The level of inventory of a manufactured product has increased by 8,000 units during a period. The following data are also available: The effect on operating income if variable costing is used rather than absorption costing would be a(n)

A)$80,000 decrease
B)$80,000 increase
C)$104,000 decrease
D)$104,000 increase

Question 68

Which of the following statements is correct using the direct costing concept?

A)All manufacturing costs are included in the calculation of cost of goods manufactured.
B)Only fixed costs are included in the calculation of cost of goods manufactured, while variable costs are considered period costs.
C)Only variable manufacturing costs are included in the calculation of cost of goods manufactured, while fixed costs are considered period costs.
D)All manufacturing costs are considered period costs.

Question 69

Which of the following would be included in the cost of a product manufactured according to variable costing?

A)sales commissions
B)office supply costs
C)interest expense
D)direct materials

Question 70

In the variable costing income statement, deduction of variable selling and administrative expenses from manufacturing margin yields

A)differential margin
B)contribution margin
C)gross profit
D)marginal expenses

Question 71

The amount of income under absorption costing will be less than the amount of income under variable costing when units manufactured

A)exceed units sold
B)equal units sold
C)are less than units sold
D)are equal to or greater than units sold

Question 72

Under variable costing, which of the following costs would not be included in finished goods inventory?

A)direct labor cost
B)direct materials cost
C)variable factory overhead cost
D)fixed factory overhead cost

Question 73

Under variable costing, which of the following costs would not be included in finished goods inventory?

A)wages of machine operator
B)steel costs for a machine tool manufacturer
C)salary of factory supervisor
D)electricity used by factory machinery

Question 74

On the variable costing income statement, the figure representing the difference between manufacturing margin and contribution margin is

A)fixed manufacturing costs
B)variable cost of goods sold
C)fixed selling and administrative expenses
D)variable selling and administrative expenses

Question 75

S&P Enterprises sold 10,000 units of inventory during a given period. The level of inventory of the manufactured product remained unchanged. The manufacturing costs were as follows: Which of the following statements is true?

A)Net income will be the same under both variable and absorption costing.
B)Net income under variable costing will be $45,000 less than net income under absorption costing.
C)Net income under absorption costing will be $40,000 more than under variable costing.
D)The difference in net income cannot be determined.

Question 76

Under absorption costing, which of the following costs would not be included in finished goods inventory?

A)hourly wages of assembly worker
B)straight-line depreciation on factory equipment
C)overtime wages paid to factory workers
D)the salaries for salespeople

Question 77

The level of inventory of a manufactured product has increased by 5,000 units during a period. The following data are also available: The effect on operating income if variable costing is used rather than absorption costing would be a

A)$50,000 decrease
B)$50,000 increase
C)$65,000 increase
D)$65,000 decrease

Question 78

Under variable costing, which of the following costs would be included in finished goods inventory?

A)salary of salesperson
B)salary of vice president of finance
C)wages of carpenters in a furniture factory
D)straight-line depreciation on factory equipment

Question 79

Under absorption costing, which of the following costs would not be included in finished goods inventory?

A)direct labor cost
B)direct materials cost
C)variable and fixed factory overhead cost
D)variable and fixed selling and administrative expenses

Question 80

The level of inventory of a manufactured product has increased by 7,000 units during a period. The following data are also available: The effect on operating income if absorption costing is used rather than variable costing would be a

A)$42,000 decrease
B)$42,000 increase
C)$52,500 increase
D)$52,500 decrease