Question 1

When all of the units produced are sold,the operating income is the same under both the absorption and variable costing methods.Assume no beginning and ending inventories.Which of the following gives the correct reason for the above statement?

Accepted Answer

A) All costs incurred have been recorded as expenses. 
B) A portion of the fixed manufacturing overhead is still in the Finished Goods Inventory account. 
C) All selling and administrative expenses have been recorded as period costs. 
D) Fixed manufacturing costs have not been considered when calculating the operating incomes.

Question 2

Service companies do not have fixed costs; all costs incurred by service companies are variable costs.

Accepted Answer

A) True 
 B)False

Question 3

When there are no units in the beginning Finished Goods Inventory and the units produced are more than the units sold,the operating income will be higher under absorption costing than variable costing.

Accepted Answer

A) True 
 B)False

Question 4

In its first year of business,Talula,Inc.produced and sold 600 units.If Talula uses variable costing,________.

Accepted Answer

A) its operating income for the period will be higher than under absorption costing 
B) its operating income for the period will be lower than under absorption costing 
C) its value of ending Finished Goods Inventory reported in the balance sheet will be higher than under absorption costing 
D) its operating income will be the same as under absorption costing

Question 5

When there are no beginning or ending balances in Finished Goods Inventory,variable and absorption costing will result in ________.

Accepted Answer

A) different amounts for ending Work-in-Process Inventory 
B) the same operating income 
C) different sales revenue 
D) different amounts for cost of goods sold

Question 6

The fixed manufacturing overhead is considered a product cost in variable costing and a period cost in absorption costing.

Accepted Answer

A) True 
 B)False

Question 7

PC Solutions,Inc.provides services to corporate and individual customers.During the month of June,the corporate business segment provided services to 500 customers and earned $60,000 in revenue.The individual business segment provided services to 400 customers and earned $35,000 in revenue.The variable costs for the corporate and individual business segments amounted to $32,000 and $25,100,respectively.In addition,the fixed costs of the company amounted to $7500.Calculate the contribution margin from each customer of the individual business segment.(Round your answer to the nearest cent.)

Accepted Answer

A) $56.00 
B) $24.75 
C) $41.00 
D) $6.00

Question 8

Managers do not consider the sales mix when making decisions because it does not affect the overall profitability of the company.

Accepted Answer

A) True 
 B)False

Question 9

Answer the following absorption costing questions:
 $$\begin{array} { | l | l | } 
\hline \text { Question } & \text { Absorption Costing } \
\hline \begin{array} { l } 
\text { Which costs are included as } \
\text { product costs? }
\end{array} & \
\hline \begin{array} { l } 
\text { Which costs are included as } \
\text { period costs? }
\end{array} & \
\hline
\end{array}$$

Accepted Answer

The answer of Answer the following absorption costing questions:
 \[\begin{array}...

Question 10

Following GAAP,the income statement issued to investors and creditors must ________.

Accepted Answer

A) be prepared in the traditional format 
B) be prepared using variable costing 
C) be prepared in the contribution margin format 
D) show the value of contribution margin

Question 11

Windspring Spas,Inc.reports the following information for August: $$\begin{array} { | l | r | } 
\hline \text { Sales Revenue } & \$ 590,000 \
\hline \text { Variable Costs } & 160,000 \
\hline \text { Fixed Costs } & 50,000 \
\hline
\end{array}$$ Calculate the contribution margin for August.

Accepted Answer

A) $110,000 
B) $430,000 
C) $380,000 
D) $540,000

Question 12

Which of the following is NOT a product cost under variable costing?

Accepted Answer

A) Direct materials 
B) Direct labor 
C) Variable manufacturing overhead 
D) Fixed manufacturing overhead

Question 13

In absorption costing,fixed manufacturing overhead is expensed ________.

Accepted Answer

A) when all the other non-manufacturing fixed costs are expensed 
B) when the product is sold 
C) at the end of the period in which it is paid 
D) when the units are produced

Question 14

Absorption costing is required by the Generally Accepted Accounting Principles (GAAP)for financial statements issued to investors,creditors,and other external users.

Accepted Answer

A) True 
 B)False

Question 15

Kertas,Inc.produces paper and office supplies and uses the just-in-time inventory system.Currently,the company is using variable costing.Which of the following is true of the effect of costing systems on the financial results of Kertas?

Accepted Answer

A) Its operating income will be significantly higher if the company uses absorption costing instead of variable costing. 
B) Its operating income will be significantly lower if the company uses absorption costing instead of variable costing. 
C) Its operating income will vary a little if the company uses absorption costing instead of variable costing. 
D) Its operating income will be negative if the company uses absorption costing instead of variable costing.

Question 16

For decisions that affect controlling costs,consider the following decision focuses.State the appropriate costing method and the reason for your answer.
 $$\begin{array} { | l | c | l | } 
\hline{ \begin{array} { c } 
\textbf { Decision } \
\textbf { Focus }
\end{array} } & \begin{array} { c } 
\textbf { Appropriate Costing } \
\textbf { Method }
\end{array} & \textbf { Reason } \
\hline \textbf { Upper } \
\textbf { management } & & \
\hline \textbf { Lower } \
\textbf { management } & & \
\hline
\end{array}$$

Accepted Answer

The answer of For decisions that affect controlling costs,consider the...

Question 17

When units produced exceed units sold,how does operating income differ between variable costing and absorption costing? Assume no beginning Finished Goods Inventory.Explain your answer.

Accepted Answer

The answer of When units produced exceed units sold,how does...

Question 18

Variable costing considers only ________ costs when determining product costs.

Accepted Answer

A) fixed manufacturing 
B) variable manufacturing 
C) variable selling and administrative 
D) fixed selling and administrative

Question 19

Which of the following statements is true of absorption costing?

Accepted Answer

A) It considers variable selling and administrative costs as product costs. 
B) It considers fixed selling and administrative costs as product costs. 
C) It considers fixed manufacturing overhead cost as product costs. 
D) It considers variable manufacturing overhead cost as period costs.

Question 20

In absorption costing,the manufacturing costs expensed are greater than the amount expensed in variable costing when units produced are less than sold because the units in beginning inventory under absorption costing were assigned a greater cost in the previous accounting period.

Accepted Answer

A) True 
 B)False

Exam 21: Variable Costing

When all of the units produced are sold,the operating income is the same under both the absorption and variable costing methods.Assume no beginning and ending inventories.Which of the following gives the correct reason for the above statement?

Service companies do not have fixed costs; all costs incurred by service companies are variable costs.

When there are no units in the beginning Finished Goods Inventory and the units produced are more than the units sold,the operating income will be higher under absorption costing than variable costing.

In its first year of business,Talula,Inc.produced and sold 600 units.If Talula uses variable costing,________.

When there are no beginning or ending balances in Finished Goods Inventory,variable and absorption costing will result in ________.

The fixed manufacturing overhead is considered a product cost in variable costing and a period cost in absorption costing.

Managers do not consider the sales mix when making decisions because it does not affect the overall profitability of the company.

Following GAAP,the income statement issued to investors and creditors must ________.

Windspring Spas,Inc.reports the following information for August: $\begin{array} { | l | r | } \hline \text { Sales Revenue } & \$ 590,000 \\\hline \text { Variable Costs } & 160,000 \\\hline \text { Fixed Costs } & 50,000 \\\hline\end{array}$ Calculate the contribution margin for August.

Which of the following is NOT a product cost under variable costing?

In absorption costing,fixed manufacturing overhead is expensed ________.

Absorption costing is required by the Generally Accepted Accounting Principles (GAAP)for financial statements issued to investors,creditors,and other external users.

Kertas,Inc.produces paper and office supplies and uses the just-in-time inventory system.Currently,the company is using variable costing.Which of the following is true of the effect of costing systems on the financial results of Kertas?

When units produced exceed units sold,how does operating income differ between variable costing and absorption costing? Assume no beginning Finished Goods Inventory.Explain your answer.

Variable costing considers only ________ costs when determining product costs.

Which of the following statements is true of absorption costing?

In absorption costing,the manufacturing costs expensed are greater than the amount expensed in variable costing when units produced are less than sold because the units in beginning inventory under absorption costing were assigned a greater cost in the previous accounting period.