Deck 15: Topic Focus Variable and Absorption Costing

Question 1

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

Answer 1

False

Question 2

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

Answer 2

False

Question 3

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

A)full costing.
B)absorption costing.
C)either full or absorption or absorption costing is acceptable according to generally accepted accounting principle.
D)neither full nor absorption costing is allowed by generally accepted accounting principles.

Answer 3

C

Question 4

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

Question 5

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

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 is more complicated for a manufacturing company than for a retail operation.

Question 6

The underlying principle that absorption costing satisfies is the

A)matching principle.
B)relevance principle.
C)historical cost principle.
D)understandability principle.

Question 7

Mixed costs are divided into their direct and indirect components.

Question 8

Absorption costing is also referred to as full costing.

Question 9

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

Question 10

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

Question 11

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

Question 12

Absorption costing is also referred to as

A)variable costing.
B)full costing.
C)nominal costing.
D)period costing.

Question 13

Which of the following is not a product cost?

A)Direct material
B)Direct labor
C)Selling expenses
D)Manufacturing overhead

Question 14

When production volume equals sales volume,the amount of fixed overhead expensed is higher using absorption costing than with variable costing.

Question 15

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

Question 16

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

Question 17

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

Question 18

Absorption costing is also referred to as variable costing.

Question 19

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

Question 20

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

Question 21

Based on the matching principle,all product costs end up in

A)Raw materials Inventory.
B)Work in Process.
C)Finished Goods.
D)Cost of Goods Sold.

Question 22

In absorption costing,all manufacturing costs are considered to be

A)product costs.
B)period costs.
C)variable costs.
D)mixed costs.

Question 23

Walker Manufacturing began its operations on January 1 of the current year.Walker produced 10,000

A)$26,000
B)$6,000
C)$8,400
D)$10,000

Question 24

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

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

Question 25

Variable costing is acceptable for which of the following purposes?

A)GAAP reporting
B)Internal reporting
C)Reporting to the IRS
D)SEC reporting

Question 26

When the

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 27

When the

A)operating income is higher under absorption costing than under variable costing.
B)operating income is lower under absorption costing than under variable costing.
C)operating is the same under absorption costing and variable costing.
D)cannot be determined with the information given.

Question 28

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

A)absorption costing.
B)normal costing.
C)direct costing.
D)full costing.

Question 29

Fixed manufacturing overhead is treated as a period expense in which of the following costing methods?

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

Question 30

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

A)gross profit.
B)gross margin.
C)contribution margin.
D)net income.

Question 31

When the

A)operating income is higher under absorption costing than under variable costing.
B)operating income is lower under absorption costing than under variable costing.
C)operating is the same under absorption costing and variable costing.
D)cannot be determined with the information given.

Question 32

To make predictions about costs and income,costs must be classified as either

A)fixed or variable.
B)product or administrative.
C)direct material or conversion.
D)direct or indirect.

Question 33

When using variable costing,period costs consist of

A)selling and administrative costs.
B)administrative costs and fixed manufacturing overhead
C)fixed and variable manufacturing overhead.
D)selling and administrative costs as well as fixed manufacturing overhead.

Question 34

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

A)all variable costs.
B)variable overhead costs.
C)all fixed costs.
D)fixed overhead costs.

Question 35

Mixed costs must be divided into which of the following components?

A)Period and product
B)Fixed and variable
C)Direct and indirect
D)Cost and profit

Question 36

When the

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 37

When the

A)operating income is higher under absorption costing than under variable costing.
B)operating income is lower under absorption costing than under variable costing.
C)operating is the same under absorption costing and variable costing.
D)cannot be determined with the information given.

Question 38

Based on the matching principle,all product cost flow through

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.

Question 39

Variable costing is also referred to as

A)absorption costing.
B)normal costing.
C)direct costing.
D)full costing.

Question 40

The matching principle states that

A)expenses should be matched with specific jobs.
B)expenses should be matched with revenues they generate.
C)revenues should be recorded in the period in which the payment is received.
D)expenses should be matched to assets which generated the expenses.

Question 41

What managerial behavior does variable costing render ineffective?

Question 42

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

Question 43

Monroe Corporation produced 20,000
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?

Question 44

Walker Manufacturing began its operations on January 1 of the current year.Walker produced 10,000

A)$8,000
B)$28,000
C)$30,000
D)$30,400

Question 45

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

Question 46

You are assigned to a team responsible for reviewing the financial statements with lower-level departmental managers.Some of your team members want to use the absorption costing income statement generally distributed by the accounting department.You believe a variable costing income statement will be more appropriate to use in explaining items to lower-level managers.Your team has requested more information on the variable costing format.
Required:
Write a memo to your team members explaining why you believe the variable costing income statement should be used.

Question 47

Walker Manufacturing began its operations on January 1 of the current year.Walker produced 10,000

A)$8,000
B)$28,000
C)$30,000
D)$30,400

Question 48

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.

Question 49

Walker Manufacturing began its operations on January 1 of the current year.Walker produced 10,000

A)$26,000
B)$6,000
C)$8,400
D)$10,000

Question 50

The following table shows Jackson Company's inventory balances,in

Question 51

Describe the format for a variable costing income statement.