Question 1

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, but it is not the only method. Other methods such as variable costing and activity-based costing may also be used.

Question 2

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

Accepted Answer

In variable costing, fixed manufacturing overhead is not treated as a product cost. Instead, it is considered a period cost and is expensed in the period in which it is incurred. Only variable manufacturing costs are included in the product cost under variable costing.

Question 3

The cost accumulation method required by generally accepted accounting principles is referred to as
A)full costing.
B)absorption costing.
C)either full or absorption or absorption costing is acceptable according to generally accepted accounting principle.
D)neither full nor absorption costing is allowed by generally accepted accounting principles.

Accepted Answer

C

Question 4

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

Accepted Answer

To make accurate predictions about costs and income, costs must be classified according to their behavior. This involves categorizing costs as either variable or fixed, as well as identifying their cost drivers. Once costs have been classified, it becomes easier to make informed decisions about pricing, productivity, and other factors that affect profitability.

Question 5

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 is more complicated for a manufacturing company than for a retail operation.

Accepted Answer

Manufacturing companies typically have more complex inventory management systems and production processes, which can make accounting for inventory costs more complicated. Additionally, forecasting the effects of financial decisions on the income statement can be more challenging for manufacturing companies due to the multiple stages in production and supply chain management. Therefore, both A and B are more complicated for a manufacturing company than for a retail operation.

Question 6

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 is a method of allocating all manufacturing costs to products, including both fixed and variable costs. This method aligns with the matching principle, which requires expenses to be matched with the revenues they generate. Since absorption costing includes all costs associated with producing a product, it matches the cost of goods sold with the revenue earned from the sale of the product, thus satisfying the matching principle.

Question 7

Mixed costs are divided into their direct and indirect components.

Accepted Answer

Mixed costs are divided into their fixed and variable components, not direct and indirect.

Question 8

Absorption costing is also referred to as full costing.

Accepted Answer

Absorption costing is also known as full costing because it considers all manufacturing costs, including both fixed and variable overheads, in the cost of a product.

Question 9

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

Accepted Answer

Variable costing and absorption costing differ in their treatment of not only variable overhead costs, but also fixed overhead costs. Under variable costing, only variable production costs (direct materials, direct labor, and variable overhead) are assigned to products, while fixed overhead costs are treated as period costs and expensed in the current period. Under absorption costing, both variable and fixed overhead costs are assigned to products, resulting in a higher cost of goods sold and lower net income in periods of low production volume.

Question 10

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

Accepted Answer

This is because absorption costing includes fixed manufacturing overhead as part of the cost of each unit produced, and the excess production will still increase the total amount of fixed overhead allocated to those units. This will result in a lower per-unit cost under absorption costing compared to variable costing, which only includes variable manufacturing costs in the cost of each unit produced. As a result, the higher net income generated by the excess production will be spread across more units under absorption costing, resulting in a higher overall net income compared to variable costing.

Question 11

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 12

Absorption costing is also referred to as
A)variable costing.
B)full costing.
C)nominal costing.
D)period costing.

Accepted Answer

Absorption costing is also known as full costing because it includes all manufacturing costs, both variable and fixed, in the cost of a product. This includes direct materials, direct labor, and overhead costs. Other costing methods, such as variable costing, only include the variable costs in the cost of a product. Nominal costing and period costing are not accurate terms for absorption costing.

Question 13

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

Accepted Answer

Selling expenses are not a product cost because they are incurred to promote and advertise the product to customers and distribute it to the market. They are considered period costs and are expensed in the period they are incurred, rather than being included in the cost of the product.

Question 14

When production volume equals sales volume,the amount of 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 15

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 variable costs in the cost of goods sold. This results in a timing difference in the expensing of fixed overhead costs between the two costing methods.

Question 16

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

Accepted Answer

The matching principle is a basic accounting principle that requires expenses to be recorded in the same period as the revenue they help to generate. This ensures that financial statements reflect the true cost of generating revenue and provide an accurate picture of a company's profitability. Therefore, expenses and revenues are matched and reported in the same accounting period.

Question 17

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

Accepted Answer

Absorption costing includes both fixed and variable manufacturing overhead in product costs, while variable costing includes only variable manufacturing overhead, affecting the timing of fixed overhead costs, not variable ones.

Question 18

Absorption costing is also referred to as variable costing.

Accepted Answer

Absorption costing is not the same as variable costing, and the two terms represent different costing approaches. In absorption costing, all costs incurred in the production process are included in the cost of the product, including fixed manufacturing overhead costs. In contrast, in variable costing, only variable costs of production are included in the cost of the product.

Question 19

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

Accepted Answer

Variable costing only considers variable manufacturing costs (direct materials, direct labor, and variable overhead) as product costs, whereas absorption costing includes all manufacturing costs (both variable and fixed overhead) as product costs.

Question 20

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

Accepted Answer

This is because absorption costing is a method of allocating all the costs incurred in the production of a product, including both variable and fixed costs, to the unit product cost.

Quiz 15: Topic Focus Variable and Absorption Costing