Question 1

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 2

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.

Question 3

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 GAAP.
D)It is prepared under the absorption method.

Accepted Answer

The traditional format of the income statement is prepared under the absorption method, which means that it includes all manufacturing costs, both variable and fixed, as part of the cost of goods sold. This format is allowed under GAAP and does not show contribution margin as a line item.

Question 4

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

Accepted Answer

Under variable costing, only variable manufacturing costs are considered product costs. Fixed manufacturing overhead is treated as a period cost and is expensed in the period in which it is incurred rather than being allocated to the product.

Question 5

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 6

Which of the following is considered a period cost under variable costing but not under absorption costing?
A)fixed selling and administrative costs
B)variable manufacturing costs
C)fixed manufacturing overhead
D)variable selling and administrative costs

Accepted Answer

The answer of Which of the following is considered a...

Question 7

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

Accepted Answer

Absorption costing includes all of these costs as product costs that are absorbed into the cost of goods sold.

Question 8

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 and includes them in the cost of goods sold. Variable selling and administrative costs are considered as period costs, not product costs. Fixed selling and administrative costs are not considered in 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 incorrect. Variable costing is often used for internal decision-making purposes as it provides information on the contribution margin of products or services. Absorption costing is often used for external reporting purposes as it is required by Generally Accepted Accounting Principles (GAAP) in many countries.

Question 10

Variable costing prepares the income statement using the traditional format.

Accepted Answer

Variable costing uses the contribution margin format, not the traditional format.

Question 11

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

Accepted Answer

In absorption costing, all product costs (direct materials, direct labor, and overhead) are recorded as assets in the inventory accounts before being expensed as cost of goods sold when the products are sold.

Question 12

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

Accepted Answer

Contribution margin is calculated by deducting total variable costs from sales revenue, not total cost of goods sold.

Question 13

Following GAAP,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 GAAP, income statements must be prepared in the traditional format that includes operating expenses and other expenses deducted from total revenues to arrive at net income. GAAP does not mandate the use of variable costing or contribution margin format for income statements. The value of contribution margin may be shown on an income statement, but it is not a requirement under GAAP.

Question 14

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

Accepted Answer

This is the traditional format for calculating operating income on an income statement.

Question 15

The traditional income statement format is prepared under absorption costing.

Accepted Answer

The traditional income statement format is typically prepared under absorption costing, which allocates all manufacturing costs, including fixed overhead costs, to the products.

Question 16

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 a GAAP requirement for financial statements issued to external users such as investors and creditors.

Question 17

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

Under the variable costing method, only variable costs are included as period costs. Variable selling and administrative costs are considered period costs, while direct materials and direct labor are considered product costs. Variable manufacturing overhead is also a product cost and is not included as a period cost under variable costing.

Question 18

Answer the following absorption costing questions:
 $$\begin{array} { | l | l | } 
\hline \text { Question } & \text { Absorption Costing } \
\hline \text { Which costs are included as } & \
\text { product costs? } & \
\hline \text { Which costs are included as } & \
\text { period costs? } & \
\hline
\end{array}$$

Accepted Answer

The answer of Answer the following absorption costing questions:
 \[\begin{array}...

Question 19

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

Accepted Answer

The contribution margin format separates costs into variable costs and fixed costs. This helps to understand the impact of changes in sales volume on profits.

Question 20

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 only considers the costs that vary with the level of production, such as direct materials, direct labor, and variable manufacturing overhead. Fixed manufacturing costs are treated as period expenses and are not included in the calculation of product cost under variable costing. Variable selling and administrative costs may be included in the calculation of product cost if they are directly related to the production of the product. Fixed selling and administrative costs are treated as period expenses and are not included in the calculation of product cost under variable costing.

Quiz 21: Variable Costing

Which of the following statements is true of variable costing?

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

Which of the following is true of the traditional format of the income statement?

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

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

Which of the following is considered a period cost under variable costing but not under absorption costing?

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

Which of the following statements is true of absorption costing?