Question 1

Which of the following statements about absorption costing is true?
A)As manufacturing output increases, the per unit manufacturing cost remains constant.
B)As manufacturing output increases, the per unit manufacturing cost decreases.
C)As manufacturing output increases, the per unit manufacturing cost increases.
D)As manufacturing output increases, the change in the per unit manufacturing cost is negated by the change in the per unit selling cost.

Accepted Answer

Absorption costing allocates all manufacturing costs to the product, including fixed costs. As production increases, the fixed costs are spread over more units, reducing the per-unit manufacturing cost.

Question 2

Under absorption costing
A)selling and administration overhead costs are inventoried.
B)selling and administration overhead costs are expensed as incurred.
C)only variable selling and administration costs are expensed while fixed selling and administration costs are inventoried.
D)only fixed selling and administration costs are expensed while variable selling and administration costs are inventoried.

Accepted Answer

Under absorption costing, all manufacturing costs (both fixed and variable) are included in the cost of the product and thus inventoried. Selling and administration overhead costs, whether fixed or variable, are considered period costs and are expensed as incurred.

Question 3

EKP's unit production cost under variable costing is $5, and $7 under absorption costing.Net income under variable costing was $10,000 and $12,000 under absorption costing last year.EKP sold 15,000 units.How many units did it produce?
A)16,000
B)14,000
C)17,000
D)13,000

Accepted Answer

The answer of EKP's unit production cost under variable costing...

Question 4

Use the following information for items 
Obama Company sells its product for $25 per unit.During 2016, it produced 20,000 units and sold 15,000 units (there was no beginning inventory).Costs per unit are: direct materials $5, direct labour $4, and variable overhead $3.Fixed costs are: $300,000 manufacturing overhead, and $50,000 selling and administrative expenses.
-The per unit manufacturing cost under variable costing is
A)$12.
B)$27.
C)$29.50.
D)$32.

Accepted Answer

Under variable costing, only variable manufacturing costs are included in the cost of goods sold. The variable manufacturing cost per unit is $5 + $4 + $3 = $12. Therefore, the per unit manufacturing cost under variable costing is $12.

Question 5

A customer wants to purchase a large quantity of your product at a price below your normal selling price.Which of the following would be most helpful in assessing the offer?
A)cost-volume-profit
B)either variable or absorption costing
C)absorption costing
D)variable costing

Accepted Answer

The answer of A customer wants to purchase a large...

Question 6

Under variable costing
A)only direct variable manufacturing costs are inventoriable.
B)only direct fixed manufacturing costs are inventoriable.
C)all manufacturing costs are inventoriable.
D)no manufacturing costs are inventoriable.

Accepted Answer

Under variable costing, only direct variable manufacturing costs are inventoriable. Fixed manufacturing costs are expensed as period costs in the period they are incurred. This is because variable costing separates fixed and variable costs to provide a clearer picture of the costs that are directly related to production.

Question 7

Which of the following terms would be found on an Income Statement using absorption costing?
A)Contribution margin
B)Variable manufacturing overhead
C)Fixed manufacturing overhead
D)Gross profit

Accepted Answer

Absorption costing includes all manufacturing costs, both fixed and variable, in the cost of each unit produced. As a result, gross profit is calculated by subtracting the cost of goods sold (which includes both variable and fixed manufacturing costs) from the total sales revenue on the income statement. Contribution margin would only be found on a variable costing income statement, and variable manufacturing overhead and fixed manufacturing overhead would be included in the cost of goods sold calculation.

Question 8

Which of the following statements about variable costing is true?
A)As manufacturing output increases, the per unit manufacturing cost remains constant.
B)As manufacturing output increases, the per unit manufacturing cost decreases.
C)As manufacturing output increases, the per unit manufacturing cost increases.
D)As manufacturing output increases, the change in the per unit manufacturing cost is negated by the change in the per unit selling cost.

Accepted Answer

Variable costing means that the per-unit manufacturing cost remains constant regardless of the level of production. This is because, under variable costing, only variable costs are allocated to each unit of production, and these costs do not change on a per-unit basis as production levels vary. Fixed costs are treated as period costs and are not allocated to individual units.

Question 9

Under absorption costing, what amount of fixed overhead is deferred to a future period?
A)$70,000
B)$75,000
C)$225,000
D)$300,000

Accepted Answer

Under absorption costing, fixed overhead is included in the cost of goods sold, and any amount of fixed overhead that is not absorbed or applied to production is considered a deferred cost. Based on the information given, the total amount of fixed overhead incurred is $375,000 ( $225,000 + $150,000). The total amount of fixed overhead that was actually applied to production is $300,000 (12,000 units x $25 fixed overhead per unit). Therefore, the amount of fixed overhead that is deferred to a future period is $75,000 ($375,000 - $300,000). So option B is the correct answer.

Question 10

How are fixed manufacturing costs handled under variable costing?
A)They are subtracted from the variable cost of goods sold to determine the ending inventory value that will be recorded on the Balance Sheet.
B)They are not recorded, which is why variable costing is not used for external reporting.
C)They are recorded directly on the Balance Sheet.
D)They are treated as period costs.

Accepted Answer

Under variable costing, fixed manufacturing costs are treated as period costs and are expensed in the period incurred. They are not included in the calculation of cost of goods sold or inventory valuation.

Question 11

Use the following information for items 
Obama Company sells its product for $25 per unit.During 2016, it produced 20,000 units and sold 15,000 units (there was no beginning inventory).Costs per unit are: direct materials $5, direct labour $4, and variable overhead $3.Fixed costs are: $300,000 manufacturing overhead, and $50,000 selling and administrative expenses.
-The per unit manufacturing cost under absorption costing is
A)$12.
B)$27.
C)$29.50.
D)$32.

Accepted Answer

The answer of Use the following information for items 
Obama...

Question 12

Throughput costing is also called super absorption costing.

Accepted Answer

Throughput costing is not the same as super absorption costing. Throughput costing focuses on variable costs directly associated with production, while super absorption costing includes both variable and fixed manufacturing costs in product costs.

Question 13

Which of the following terms would be found on an Income Statement using variable costing?
A)Contribution margin
B)Variable manufacturing overhead
C)Fixed manufacturing overhead not included in cost of goods sold
D)Gross profit

Accepted Answer

Variable costing includes the contribution margin, which is sales minus variable costs.

Question 14

When production is greater than sales
A)net income under absorption costing will be greater than or less than net income under variable costing depending on the selling and administration costs.
B)net income under absorption costing will be equal to net income under variable costing.
C)net income under absorption costing will be less than net income under variable costing.
D)net income under absorption costing will be greater than net income under variable costing.

Accepted Answer

When production is greater than sales, under absorption costing, some of the fixed manufacturing overhead costs are included in the ending inventory and not expensed in the current period. This results in higher net income compared to variable costing, where all fixed manufacturing overhead costs are expensed in the period they are incurred, regardless of the level of production or sales.

Question 15

Under absorption costing
A)only the quantity of products sold determines cost of goods sold.
B)only the quantity of products produced determines cost of goods sold.
C)both the quantity of products produced and sold determines cost of goods sold.
D)neither the quantity of products produced or sold determines cost of goods sold.

Accepted Answer

Under absorption costing, both the quantity of products produced and sold determines cost of goods sold. This is because absorption costing includes all manufacturing costs, both fixed and variable, in the cost of the product. Therefore, the cost of goods sold is determined by the number of units produced and the amount of fixed and variable costs allocated to each unit.

Question 16

Use the following information for items 
Obama Company sells its product for $25 per unit.During 2016, it produced 20,000 units and sold 15,000 units (there was no beginning inventory).Costs per unit are: direct materials $5, direct labour $4, and variable overhead $3.Fixed costs are: $300,000 manufacturing overhead, and $50,000 selling and administrative expenses.
-Ending inventory under variable costing is
A)$60,000.
B)$240,000.
C)$360,000.
D)$410,000.

Accepted Answer

Under variable costing, only variable manufacturing costs are included in the cost of goods sold. Fixed manufacturing overhead and selling and administrative expenses are treated as period expenses and are deducted from total revenue to arrive at net income.

Calculation of cost of goods sold:
Direct materials per unit = $5 
Direct labor per unit = $4 
Variable overhead per unit = $3 
Total variable cost per unit = $12 
Cost of goods sold = 15,000 units x $12 per unit = $180,000

Calculation of ending inventory:
Ending inventory = (20,000 units produced - 15,000 units sold) x $12 per unit = $60,000

Therefore, the ending inventory under variable costing is $60,000.

Question 17

Under variable costing
A)only the quantity of products sold determines cost of goods sold.
B)only the quantity of products produced determines cost of goods sold.
C)both the quantity of products produced and sold determines cost of goods sold.
D)neither the quantity of products produced or sold determines cost of goods sold.

Accepted Answer

Under variable costing, only the quantity of products sold determines the cost of goods sold. Variable costing considers only the variable costs, such as direct materials, direct labor, and variable overhead, as the cost of producing a product. Hence, the cost of goods sold will vary in direct proportion to the number of products sold.

Question 18

Use the following information for items 
Obama Company sells its product for $25 per unit.During 2016, it produced 20,000 units and sold 15,000 units (there was no beginning inventory).Costs per unit are: direct materials $5, direct labour $4, and variable overhead $3.Fixed costs are: $300,000 manufacturing overhead, and $50,000 selling and administrative expenses.
-Cost of goods sold under absorption costing is
A)$180,000.
B)$405,000.
C)$442,500.
D)$540,000.

Accepted Answer

Under absorption costing, fixed manufacturing overhead costs are included in the cost of goods sold.

Total variable cost per unit: $5 + $4 + $3 = $12 
Total manufacturing overhead cost per unit: ($300,000 ÷ 20,000) = $15 
Total cost per unit: $12 + $15 = $27

Cost of goods sold = Cost per unit × Number of units sold 
Cost of goods sold = $27 × 15,000 = $405,000

Question 19

Use the following information for items 
Green Company sells its product for $11,000 per unit.Variable costs per unit are: manufacturing, $6,000; and selling and administrative, $125.Fixed costs are: $30,000 manufacturing overhead, and $40,000 selling and administrative.There was no beginning inventory at 1/1/14.Production was 20 units per year in 2014-2016.Sales were 20 units in 2014, 16 units in 2015, and 24 units in 2016.
-Income under absorption costing for 2015 is
A)$ 8,000.
B)$14,000.
C)$16,000.
D)$22,000.

Accepted Answer

Under absorption costing, fixed manufacturing overhead costs are included in the cost of the product. Thus, the cost per unit will be:

Cost per unit = Variable manufacturing cost per unit + Fixed manufacturing overhead per unit
Cost per unit = $6,000 + ($30,000 ÷ 20 units)
Cost per unit = $7,500

In 2015, only 16 units were sold. Thus, the cost of goods sold (COGS) will be:

COGS = Cost per unit × Number of units sold
COGS = $7,500 × 16
COGS = $120,000

The total cost incurred in 2015 will be:

Total cost = Variable manufacturing cost + Fixed manufacturing overhead + Variable selling and administrative cost + Fixed selling and administrative cost
Total cost = ($6,000 + $125) × 16 + $40,000 + $30,000
Total cost = $101,000

Thus, the income for 2015 will be:

Income = Sales - COGS - Total selling and administrative expenses
Income = ($11,000 × 16) - $120,000 - $40,000
Income = $176,000 - $160,000
Income = $16,000

Question 20

Under absorption costing
A)only direct variable manufacturing costs are inventoriable.
B)only direct fixed manufacturing costs are inventoriable.
C)all manufacturing costs are inventoriable.
D)no manufacturing costs are inventoriable.

Accepted Answer

Under absorption costing, all manufacturing costs (both direct and indirect) are inventoriable as part of the cost of goods sold. This includes direct materials, direct labor, and both fixed and variable manufacturing overhead.

Quiz 8: Alternative Inventory Costing Methods: a Decision-Making Perspective

Which of the following statements about absorption costing is true?

Under absorption costing

EKP's unit production cost under variable costing is $5, and $7 under absorption costing.Net income under variable costing was $10,000 and $12,000 under absorption costing last year.EKP sold 15,000 units.How many units did it produce?

A customer wants to purchase a large quantity of your product at a price below your normal selling price.Which of the following would be most helpful in assessing the offer?

Under variable costing

Which of the following terms would be found on an Income Statement using absorption costing?

Which of the following statements about variable costing is true?

Under absorption costing, what amount of fixed overhead is deferred to a future period?

How are fixed manufacturing costs handled under variable costing?

Throughput costing is also called super absorption costing.

Which of the following terms would be found on an Income Statement using variable costing?

When production is greater than sales

Under absorption costing

Under variable costing

Under absorption costing