Question 1

Absorption costing is also referred to as full costing.

Accepted Answer

This statement is true. Absorption costing is another term for full costing, which refers to the practice of including all direct and indirect costs associated with manufacturing a product in the product's cost.

Question 2

The only difference between variable and absorption costing is the treatment of fixed overhead costs.

Accepted Answer

Variable costing only includes variable manufacturing costs as product costs, while fixed manufacturing overhead costs are treated as period costs and expensed in the period they are incurred. On the other hand, absorption costing considers both variable and fixed manufacturing overhead costs as product costs and includes them in the cost of goods sold.

Question 3

In variable costing,fixed manufacturing overhead is treated as a product cost.

Accepted Answer

In variable costing, fixed manufacturing overhead is treated as a period cost and not a product cost. This means that it is expensed in the period it is incurred rather than being allocated to products in the inventory.

Question 4

Which of the following is $\textbf{   not       }$ a product cost?
A)Direct material
B)Direct labor
C)Selling expenses
D)Manufacturing overhead

Accepted Answer

Selling expenses are not considered a product cost because they are costs incurred in the process of promoting and selling a product, not in the production process. Direct material, direct labor, and manufacturing overhead are all costs that are directly associated with producing a product.

Question 5

The matching principle states that expenses should be matched with the revenues they generate.

Accepted Answer

The matching principle is a fundamental concept of accounting that requires businesses to match revenue earned in a period with the expenses incurred in generating that revenue. By doing so, a company can accurately determine its profitability for a period and provide users of its financial statements with a clearer picture of its financial performance.

Question 6

The cost accumulation method required by generally accepted accounting principles is referred to as
A)Full costing
B)Absorption
C)Either full costing or absorption
D)Neither full costing nor absorption

Accepted Answer

Generally accepted accounting principles require either full costing or absorption costing for cost accumulation. Both methods include all manufacturing costs in the cost of the product, including direct materials, direct labor, and both fixed and variable manufacturing overhead.

Question 7

Which of the following items is more complicated for a manufacturing company than for a retail operation?
A)Accounting for inventory costs
B)Trying to forecast the effects of financial decisions on the income statement
C)Both accounting for inventory costs and trying to forecast the effects of financial decisions on the income statement
D)Neither accounting for inventory costs nor trying to forecast the effects of financial decisions on the income statement

Accepted Answer

Both accounting for inventory costs and trying to forecast the effects of financial decisions on the income statement are more complicated for a manufacturing company than for a retail operation. Manufacturing companies have to deal with raw materials, work in progress inventory, and finished goods inventory, which require more complex accounting methods than a retail operation that usually deals with finished goods only. Additionally, forecasting financial decisions for a manufacturing company is more complex due to factors such as production costs, production volumes, and capacity utilization.

Question 8

The underlying principle that absorption costing satisfies is the historical cost principle.

Accepted Answer

The answer of The underlying principle that absorption costing satisfies...

Question 9

The difference between absorption and variable costing is the timing difference in the expensing of fixed overhead costs.

Accepted Answer

Absorption costing includes fixed overhead costs in the cost of goods sold, while variable costing only includes them as a period expense. This can result in differences in reported income, as absorption costing can spread fixed overhead costs over a larger number of units produced, making each unit appear to have a lower cost.

Question 10

When production volume equals sales volume,fixed overhead expensed is higher using absorption costing than with variable costing.

Accepted Answer

When production volume equals sales volume, the fixed overhead expensed is the same under both absorption and variable costing because there is no change in inventory levels.

Question 11

Absorption costing is used for managerial accounting,but is not allowed for reporting in accordance with generally accepted accounting principles.

Accepted Answer

Absorption costing is allowed for reporting in accordance with generally accepted accounting principles as it is required for external financial reporting purposes. However, it may not be the preferred costing method for managerial decision-making.

Question 12

Mixed costs are divided into their direct and indirect components.

Accepted Answer

The answer of Mixed costs are divided into their direct...

Question 13

The difference between absorption and variable costing is the timing difference in the expensing of variable overhead costs.

Accepted Answer

The answer of The difference between absorption and variable costing...

Question 14

When production volume exceeds sales volume,net income will be higher when using absorption costing than when using variable costing.

Accepted Answer

Absorption costing includes fixed manufacturing overhead costs in the cost of each unit produced, meaning that when production volume exceeds sales volume, some of these fixed costs are still being absorbed by the units sold, resulting in a higher net income. In contrast, variable costing only includes variable production costs in the cost of each unit produced, so when production volume exceeds sales volume, there may be unabsorbed fixed costs that could decrease net income.

Question 15

The process of classifying all the costs incurred in the production of a product is referred to as absorption costing.

Accepted Answer

This is a correct statement. Absorption costing involves allocating all manufacturing costs (including direct materials, direct labor, and overhead) to the product being produced.

Question 16

The underlying principle that absorption costing satisfies is the
A)Matching principle
B)Relevance principle
C)Historical cost principle
D)Understandability principle

Accepted Answer

Absorption costing follows the matching principle, which means that it matches the cost of producing goods with the revenue generated from selling those goods. This includes both variable and fixed costs in the product cost, making it a better measure of profitability and satisfying the matching principle.

Question 17

To make predictions about costs and income,you must first separate costs by their behavior.

Accepted Answer

This statement is true. To make accurate predictions and decisions about costs and income, it is important to understand how costs behave - whether they are fixed or variable, for example.

Question 18

Absorption costing is also referred to as
A)Variable costing
B)Full costing
C)Nominal costing
D)None of these ans choices are correct

Accepted Answer

Absorption costing is also known as full costing because it considers all costs (both variable and fixed) involved in manufacturing a product as part of the cost of production.

Question 19

Absorption costing is also referred to as variable costing.

Accepted Answer

Absorption costing and variable costing are two different methods of costing. Absorption costing includes both fixed and variable manufacturing overhead costs in the cost of a product, while variable costing only includes variable manufacturing overhead costs.

Question 20

The only difference between variable and absorption costing is the treatment of variable overhead costs.

Accepted Answer

While variable overhead costs are treated differently under variable and absorption costing, there are other differences between the two costing methods as well, such as the treatment of fixed overhead costs.

Quiz 15: Topic Focus Variable and Absorption Costing