Question 1

Income reported under absorption and variable costing can be reconciled by focusing on the effects of the ﬁve places where the two statements differ.

Accepted Answer

The income reported under absorption and variable costing can be reconciled by focusing on the effects of inventory changes, specifically the fixed manufacturing overhead costs deferred or released from inventory.

Question 2

Hidden private environmental costs are those that are caused by environmental issues but have not been so identiﬁed by the accounting system.

Accepted Answer

Hidden private environmental costs refer to those environmental costs that are not reflected in the accounting system or not identified as a cost by businesses.

Question 3

Absorption costing is required for tax purposes.

Accepted Answer

Absorption costing is required by tax authorities in many countries as it is believed to provide a more accurate reflection of the true cost of production.

Question 4

When discussing the costs of quality, the costs of determining whether defects exist are known as appraisal costs.

Accepted Answer

Appraisal costs are the costs incurred to determine whether defects exist in products or services. These costs include inspection and testing of materials, products, and services, as well as the cost of calibration and maintenance of measuring and testing equipment.

Question 5

On an absorption-costing income statement, ﬁxed overhead costs are period costs.

Accepted Answer

In absorption costing, fixed overhead costs are treated as product costs, not period costs, and are included in the cost of goods sold.

Question 6

Cost-volume-proﬁt analysis and break-even calculations account for ﬁxed manufacturing overhead as a lump sum.

Accepted Answer

Cost-volume-profit analysis and break-even calculations account for fixed manufacturing overhead as a lump sum, as this cost is a fixed expense that does not change with changes in production volume or sales.

Question 7

Fixed manufacturing overhead is not inventoried under absorption costing.

Accepted Answer

Fixed manufacturing overhead is inventoried under absorption costing along with direct materials, direct labor, and variable manufacturing overhead.

Question 8

Many managers prefer to use absorption-costing data in cost-based pricing decisions.

Accepted Answer

Absorption costing includes all manufacturing costs, including direct materials, direct labor, and both variable and fixed manufacturing overhead. This can provide a more accurate and comprehensive picture of the cost of producing a product and may be preferred by managers for pricing decisions.

Question 9

On a global scale, there are four primary environmental agreements addressing the atmosphere, hazardous substances, the marine environment, nature conservation, and nuclear power issues.

Accepted Answer

There are more than four primary environmental agreements globally, addressing a wide range of issues including but not limited to the atmosphere, hazardous substances, the marine environment, nature conservation, and nuclear power. These agreements encompass various specific topics and are numerous, covering different aspects of environmental protection and conservation.

Question 10

Total quality management or TQM refers to the broad set of management and control processes designed to focus the entire organization and all of its employees on providing products or services that do the best possible job of satisfying the customer.

Accepted Answer

This statement correctly defines the concept of Total Quality Management (TQM).

Question 11

When units sold exceed units produced, absorption-costing income will be lower than variable-costing income.

Accepted Answer

The answer of When units sold exceed units produced, absorption-costing...

Question 12

Under variable costing, which of the following is not considered a product cost?
A)Fixed manufacturing overhead.
B)Variable manufacturing overhead.
C)Direct labor.
D)Direct materials.
E)Indirect materials.

Accepted Answer

Under variable costing, fixed manufacturing overhead is considered a period cost and not a product cost. Product costs include direct materials, direct labor, and variable manufacturing overhead. Indirect materials are also considered product costs as they are used in the production process.

Question 13

On a variable-costing income state ment, the cost of goods sold is measured at variable cost, which includes direct material, direct labor, and variable manufacturing overhead.

Accepted Answer

On a variable-costing income statement, only the variable costs are considered in the cost of goods sold calculation. This includes direct material, direct labor, and variable manufacturing overhead. Fixed manufacturing overhead is not included in the cost of goods sold calculation, but is instead treated as a period cost and expensed in the period in which it is incurred.

Question 14

An analytical method that aims at achieving near-perfect results in a production process is known as the zero- defect perspective.

Accepted Answer

The answer of An analytical method that aims at achieving...

Question 15

On a variable-costing income state ment, ﬁxed overhead is not treated as a period cost.

Accepted Answer

Fixed overhead is treated as a period cost in a variable-costing income statement, meaning it is expensed in the period incurred rather than being allocated to product costs.

Question 16

Absorption costing is inconsistent with CVP analysis.

Accepted Answer

Absorption costing includes fixed manufacturing overhead in product costs, which can lead to over- or under-statement of profits and incorrect determination of break-even points in CVP analysis. In contrast, variable costing only includes variable costs in product costs and is preferred for CVP analysis.

Question 17

The quality of conformance refers to how well a product is conceived or designed for its intended use.

Accepted Answer

The quality of conformance refers to how well a product meets its intended design specifications and requirements, not how well it was conceived or designed in the first place.

Question 18

Variable manufacturing overhead becomes part of a unit's cost when variable costing is used.

Accepted Answer

Variable manufacturing overhead is included in the unit cost calculation when using variable costing. This is because variable costing only includes variable production costs as part of the unit cost, and therefore variable manufacturing overhead is classified as a variable cost and allocated to each unit produced.

Question 19

For external-reporting purposes, generally accepted accounting principles require that net income be based on variable costing.

Accepted Answer

Generally accepted accounting principles require that net income be based on absorption costing for external-reporting purposes, not variable costing. Variable costing is primarily used for internal decision-making purposes.

Question 20

Under variable costing, ﬁxed manufacturing overhead is:
A)expensed immediately when incurred.
B)never expensed.
C)applied directly to Finished-Goods Inventory.
D)applied directly to Work-in-Process Inventory.
E)treated in the same manner as variable manufacturing overhead.

Accepted Answer

Under variable costing, fixed manufacturing overhead is expensed immediately when incurred. This means that it is included in the period's expenses rather than being added to the cost of the product. This is because variable costing only applies direct materials, direct labor, and variable manufacturing overhead to the cost of the product.

Quiz 8: Variable Costing and the Costs of Quality and Sustainability