Question 1

The traditional income statement format calculates operating income as gross profit minus selling and administrative expenses.

Accepted Answer

This is correct. Operating income is calculated as gross profit minus selling and administrative expenses in the traditional income statement format.

Question 2

Which of the following statements is true of absorption costing?
A)It considers variable selling and administrative costs as product costs.
B)It considers fixed selling and administrative costs as product costs.
C)It considers fixed manufacturing overhead cost as product costs.
D)It considers variable manufacturing overhead cost as period costs.

Accepted Answer

Absorption costing considers fixed manufacturing overhead cost as product costs, meaning these costs are included in the cost of goods sold. Variable selling and administrative costs are generally considered period costs and are expensed in the period in which they are incurred. Fixed selling and administrative costs may be included in absorption costing, but only if they are directly related to the production of the product.

Question 3

Which of the following statements is true of variable costing?
A)It considers variable manufacturing overhead as period costs.
B)It considers fixed manufacturing overhead as product costs.
C)It considers variable selling and administrative costs as product costs.
D)It considers fixed selling and administrative costs as period costs.

Accepted Answer

D

Question 4

The contribution margin format of the income statement categorizes costs by their behavior.

Accepted Answer

The contribution margin format segregates costs into variable and fixed categories, based on their behavior.

Question 5

Following Generally Accepted Accounting Principles,the income statement issued to investors and creditors must ________.
A)be prepared in the traditional format
B)be prepared using variable costing
C)be prepared in the contribution margin format
D)show the value of contribution margin

Accepted Answer

According to Generally Accepted Accounting Principles, the income statement should be prepared in the traditional format, which presents revenues and expenses for a specific period of time, resulting in net income or loss. Variable costing and contribution margin format are alternative methods of presenting income statements that are not required by accounting standards. Showing the value of contribution margin is important for internal management purposes but not mandatory for external financial reporting.

Question 6

In absorption costing,all product costs are recorded first as assets in the inventory accounts.

Accepted Answer

In absorption costing, all product costs, including direct materials, direct labor, and overhead, are recognized as assets in the inventory accounts until the products are sold. This includes fixed manufacturing overhead costs, which are assigned to products and recorded as assets until they are sold.

Question 7

Unit product cost calculations using absorption costing does not include ________.
A)fixed manufacturing overhead
B)variable manufacturing overhead
C)variable selling and administrative costs
D)direct materials

Accepted Answer

Unit product cost calculations using absorption costing include direct materials, fixed manufacturing overhead, and variable manufacturing overhead. However, variable selling and administrative costs are not included in the calculation.

Question 8

Variable costing considers only ________ costs when determining product costs.
A)fixed manufacturing
B)variable manufacturing
C)variable selling and administrative
D)fixed selling and administrative

Accepted Answer

Variable costing considers only the variable manufacturing costs when determining product costs. Fixed manufacturing costs are considered period costs and are expensed in the period incurred, rather than being allocated to products like they are in absorption costing. Variable selling and administrative costs and fixed selling and administrative costs are not considered in determining product costs under either variable or absorption costing.

Question 9

Variable costing is used for external reporting purposes,and absorption costing is used for internal decision-making purposes.

Accepted Answer

The statement is the opposite of the correct accounting practice. Variable costing is used for internal decision-making purposes, while absorption costing is used for external reporting purposes.

Question 10

Contribution margin is calculated by deducting the total cost of goods sold from sales revenue.

Accepted Answer

Contribution margin is calculated by deducting the variable costs associated with the production of goods or services from sales revenue. It is not the same as the total cost of goods sold.

Question 11

Absorption costing is required by the Generally Accepted Accounting Principles (GAAP)for financial statements issued to investors,creditors,and other external users.

Accepted Answer

Absorption costing is required by GAAP for financial statements issued to external users such as investors and creditors.

Question 12

Which of the following is true of the traditional format of the income statement?
A)It is prepared under the variable costing method.
B)It shows contribution margin as a line item.
C)It is not allowed under the US GAAP.
D)It is prepared under the absorption method.

Accepted Answer

The traditional format of the income statement is prepared using the absorption method, which allocates all manufacturing costs to the units produced. Option A is incorrect because the income statement format is not related to the costing method used. Option B is incorrect because contribution margin is not typically shown as a separate line item on the traditional format. Option C is incorrect because the traditional format is allowed under US GAAP.

Question 13

Variable costing prepares the income statement using the traditional format.

Accepted Answer

Variable costing uses the contribution margin format for the income statement, which separates costs into variable and fixed categories. This is different from the traditional format used in absorption costing, which includes all costs in the cost of goods sold section and does not separate them by variable and fixed categories.

Question 14

Period costs under the variable costing method include ________.
A)variable manufacturing overhead
B)variable selling and administrative costs
C)direct materials
D)direct labor

Accepted Answer

Period costs under the variable costing method include variable selling and administrative costs. Direct materials and direct labor are product costs under the variable costing method, while variable manufacturing overhead is a production cost that is included in the cost of goods sold.

Question 15

Variable costing considers direct materials,direct labor,variable manufacturing overhead,and fixed manufacturing overhead as product costs.

Accepted Answer

Variable costing considers direct materials, direct labor, and variable manufacturing overhead as product costs, but it treats fixed manufacturing overhead as a period cost, not a product cost.

Question 16

Absorption costing considers direct materials,direct labor,variable manufacturing overhead,and fixed manufacturing overhead as product costs.

Accepted Answer

Absorption costing considers all four of these costs as product costs and includes them in the cost of goods sold.

Question 17

The fixed manufacturing overhead is considered a product cost in variable costing and a period cost in absorption costing.

Accepted Answer

In variable costing, fixed manufacturing overhead is considered a period cost, whereas in absorption costing, it is treated as a product cost.

Question 18

The traditional income statement format is prepared under absorption costing.

Accepted Answer

The traditional income statement format is prepared under absorption costing, which includes all manufacturing costs (including fixed overhead) as part of the cost of goods sold.

Question 19

Fixed manufacturing overhead is considered a product cost under variable costing.

Accepted Answer

Fixed manufacturing overhead is considered a period cost under variable costing, as it is not included in the calculation of the cost of goods sold.

Question 20

Absorption costing considers fixed selling and administrative costs as product costs.

Accepted Answer

Absorption costing includes all manufacturing costs (both fixed and variable) in the cost of a product, but it does not treat fixed selling and administrative costs as product costs; these are considered period costs and are expensed in the period they are incurred.

Quiz 21: Variable Costing

The traditional income statement format calculates operating income as gross profit minus selling and administrative expenses.

Which of the following statements is true of absorption costing?

Which of the following statements is true of variable costing?