Question 1

Describe the format for a variable costing income statement.

Accepted Answer

A 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.

Question 2

What managerial behavior does variable costing render ineffective?

Accepted Answer

Using 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.

Question 3

Absorption costing is also referred to as

Accepted Answer

A)  Variable costing
B)  Full costing
C)  Nominal costing
D)  None of these ans choices are correct B

Question 4

In variable costing,fixed manufacturing overhead is treated as a product cost.

Accepted Answer

A) True 
 B)False

Question 5

When the units produced is less than the units sold

Accepted Answer

A)  Ending inventory on the balance sheet is lower under absorption costing than under variable costing.
B)  Ending inventory on the balance sheet is higher under absorption costing than under variable costing.
C)  Ending inventory on the balance sheet is the same under absorption costing and variable costing.
D)  Cannot be determined with the information given.

Question 6

Etters Manufacturing Company has provided the following financial data for its most recent month.
 
Required:

Prepare an income statement using a variable costing format.

Accepted Answer

The answer of Etters Manufacturing Company has provided the following...

Question 7

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?

Accepted Answer

The answer of Monroe Corporation produced 20,000 units during the...

Question 8

The underlying principle that absorption costing satisfies is the historical cost principle.

Accepted Answer

A) True 
 B)False

Question 9

Based on the matching principle,all product costs flow through

Accepted Answer

A)  Raw materials Inventory
B)  Work in Process
C)  Finished Goods
D)  All of these ans choices are correct.

Question 10

In absorption costing,all manufacturing costs are considered to be

Accepted Answer

A)  Product costs
B)  Period costs
C)  Variable costs
D)  Mixed costs

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

Which of the following items is more complicated for a manufacturing company than for a retail operation?

Accepted Answer

A)  Accounting for inventory costs
B)  Trying to forecast the effects of financial decisions on the income statement
C)  Both accounting for inventory costs and trying to forecast the effects of financial decisions on the income statement
D)  Neither accounting for inventory costs nor trying to forecast the effects of financial decisions on the income statement

Question 13

Absorption costing is used for managerial accounting,but is not allowed for reporting in accordance with generally accepted accounting principles.

Accepted Answer

A) True 
 B)False

Question 14

To make predictions about costs and income,you must first separate costs by their behavior,

Accepted Answer

A)  Fixed or variable
B)  Product or selling and administrative
C)  Direct material,direct labor or manufacturing overhead
D)  Direct or indirect

Question 15

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

Accepted Answer

The answer of Walker’s Manufacturing began its operations on January...

Question 16

Variable costing is also referred to as

Accepted Answer

A)  Absorption costing
B)  Normal costing
C)  Direct costing
D)  Full costing

Question 17

Variable costing is acceptable for which of the following purposes?

Accepted Answer

A)  GAAP reporting
B)  Internal reporting
C)  Reporting to the IRS
D)  All of these ans choices are correct

Question 18

Absorption costing is also referred to as full costing.

Accepted Answer

A) True 
 B)False

Question 19

When using variable costing,which of the following costs are treated as period costs?

Accepted Answer

A)  Selling
B)  Administrative
C)  Fixed manufacturing overhead
D)  All of these ans choices are correct

Question 20

Based on the matching principle,all product cost flow through

Accepted Answer

A)  Raw Material Inventory,Work in Process Inventory and Finished Goods until the goods are sold.
B)  Raw Material Inventory,Work in Process Inventory and Manufacturing Overhead until the goods are sold.
C)  Raw Material Inventory,Direct Materials and Conversion,and Work in Process.
D)  Raw Material Inventory,Conversion,and Finished Goods until the goods are sold.

Exam 15: Topic Focus Variable and Absorption Costing

Describe the format for a variable costing income statement.

What managerial behavior does variable costing render ineffective?

Absorption costing is also referred to as

In variable costing,fixed manufacturing overhead is treated as a product cost.

When the units produced is less than the units sold

Etters Manufacturing Company has provided the following financial data for its most recent month. Required: Prepare an income statement using a variable costing format.

The underlying principle that absorption costing satisfies is the historical cost principle.

Based on the matching principle,all product costs flow through

In absorption costing,all manufacturing costs are considered to be

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

Which of the following items is more complicated for a manufacturing company than for a retail operation?

Absorption costing is used for managerial accounting,but is not allowed for reporting in accordance with generally accepted accounting principles.

To make predictions about costs and income,you must first separate costs by their behavior,

Variable costing is also referred to as

Variable costing is acceptable for which of the following purposes?

Absorption costing is also referred to as full costing.

When using variable costing,which of the following costs are treated as period costs?

Based on the matching principle,all product cost flow through