Deck 5: Variable Costing for Management Analysis

Question 1

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

Answer 1

False

Question 2

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

Answer 2

True

Question 3

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

Answer 3

True

Question 4

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

Question 5

Variable costing is also known as direct costing.

Question 6

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

Question 7

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

Question 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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 15

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

Question 16

The absorption costing income statement does distinguish between variable and fixed costs.

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

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

Question 22

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 23

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

Question 24

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 25

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

Question 26

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

Question 27

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 28

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 29

The contribution margin and the manufacturing margin are usually equal.

Question 30

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

Question 31

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 32

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 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 smaller than that at the beginning, income from operations reported under variable costing will be larger than income from operations reported under absorption costing.

Question 35

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

Question 36

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 37

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 38

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 39

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 40

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 41

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

Question 42

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

Question 43

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 44

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

Question 45

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 46

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 47

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 48

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

Question 49

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 50

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 51

In the long run, for a business to remain in operation, the selling price of a product should normally cover all costs and expenses and provide a reasonable income.

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 unit price or unit cost factor.

Question 53

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

Question 54

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 55

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 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

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

Question 58

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 59

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 60

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

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

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

Question 63

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 64

Another name for variable costing is:

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

Question 65

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

Question 66

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 67

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

A) sales commissions
B) property taxes on factory buildings
C) interest expense
D) direct materials

Question 68

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 69

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

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

Question 70

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

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 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) advertising costs for a furniture manufacturer

Question 73

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 74

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 75

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 76

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 77

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

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

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

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