Deck 5: Variable Costing for Management Analysis

Question 1

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

Answer 1

True

Question 2

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

Answer 2

True

Question 3

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

Answer 3

False

Question 4

Variable costing is also known as direct costing.

Question 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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.

Question 18

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

Question 19

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

Question 20

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

Question 21

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

Question 22

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

Question 23

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

Question 24

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

Question 25

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

Question 26

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

Question 27

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

Question 28

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

Question 29

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

Question 30

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

Question 31

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

Question 32

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

Question 33

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

Question 34

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

Question 35

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

Question 36

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

Question 37

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

Question 38

The contribution margin and the manufacturing margin are usually equal.

Question 39

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

Question 40

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

Question 41

The systematic examination of differences between planned and actual contribution margins is termed contribution margin analysis.

Question 42

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 43

Companies prepare contribution margin reports by market segments and product segments because products contribute to profitability in various ways.

Question 44

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

Question 45

In contribution margin analysis, the quantity factor is computed as the difference between actual quantity sold and the planned quantity sold, multiplied by the planned unit sales price or unit cost.

Question 46

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 47

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

Question 48

In contribution margin analysis, the effect of a difference in unit sales price or unit cost on the number of units sold is termed the unit price or unit cost factor.

Question 49

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

Question 50

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 51

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 52

In contribution margin analysis, the effect of a difference in unit sales price or unit cost on the number of units sold is termed the quantity factor.

Question 53

In contribution margin analysis, the unit price or unit cost factor is computed as the difference between actual quantity sold and the planned quantity sold, multiplied by the planned unit sales price or unit cost.

Question 54

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

Question 55

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

Question 56

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

Question 57

In contribution margin analysis, the effect of a difference in the number of units sold, assuming no change in unit sales price or cost, is termed the unit price or unit cost factor.

Question 58

In contribution margin analysis, the effect of a difference in the number of units sold, assuming no change in unit sales price or cost, is termed the quantity factor.

Question 59

Ford's Expedition sport utility vehicle is its most profitable model.Therefore, Ford need not promote its Expedition model anymore.

Question 60

In contribution margin analysis, the unit price or unit cost factor is computed as the difference between the actual unit price or unit cost and the planned unit price or unit cost, multiplied by the actual quantity sold.

Question 61

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 62

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

Question 63

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 64

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 65

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

Question 66

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 67

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 68

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 69

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 70

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 71

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

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

Question 72

What term 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 73

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 74

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 75

Contribution margin reporting and analysis is appropriate only for manufacturing firms, not for service firms.

Question 76

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 77

A change in the amount of sales can be due to either a change in the units sold or a change in price or both.

Question 78

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 79

Another name for variable costing is:

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

Question 80

What term 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