Question 1

Using absorption costing, which of the following manufacturing costs are assigned to products?

Accepted Answer

Absorption costing assigns all direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead costs to products.

Question 2

Under absorption costing, which of the following statements is not true?

Accepted Answer

Under absorption costing, fixed overhead costs are included as part of the cost of a product and are assigned to inventory. This means that as inventory builds up, more fixed overhead costs are assigned to it, which can result in higher reported profits. This can create an incentive for managers to produce and hold more inventory than is necessary, leading to overproduction and inventory buildup. However, this statement is not true for fixed inventory costs, as they are not treated in the same manner as they are under variable costing. Fixed inventory costs, such as property taxes and insurance premiums for a warehouse, are not assigned to products and instead are expensed in the period they are incurred.

Question 3

Mentor Corp. has provided the following information for the current year:  Calculate the unit product cost using variable costing.

Accepted Answer

The answer of Mentor Corp. has provided the following information...

Question 4

When the number of units sold exceeds the number of units produced, income reported under absorption costing will be lower than variable costing. Which of the following gives the best justification of the above statement?

Accepted Answer

When the number of units sold exceeds the number of units produced, according to absorption costing, fixed manufacturing overhead costs are deferred in ending inventory as a part of the product cost. Therefore, the fixed overhead cost deferred in ending inventory will be greater than the fixed overhead cost recognized from beginning inventory, leading to lower income compared to variable costing. Thus, option D is the correct choice as it justifies the given statement.

Question 5

Which of the following would be a line item for a variable costing income statement?

Accepted Answer

Contribution margin is a line item in a variable costing income statement as it deducts only variable costs from sales revenue to arrive at the contribution margin. Other options such as gross margin and total cost of goods sold may appear in a traditional income statement, but not necessarily in a variable costing income statement. Options B and E are related to inventory and not directly related to income statement line items.

Question 6

Which of the following statements is true regarding absorption costing?

Accepted Answer

Absorption costing assigns all manufacturing costs, both fixed and variable, to products. It is a traditional costing approach that is permitted to be used for both financial and tax reporting purposes. Option A, B, C, and E are incorrect statements regarding absorption costing.

Question 7

When evaluating a special order, management should:

Accepted Answer

When evaluating a special order, management should accept the order if the incremental revenue exceeds total variable product costs. This is because fixed costs are typically unaffected by the order in the short term, so the decision should be based on whether the additional revenue covers the additional costs directly associated with the order.

Question 8

Under absorption costing, a company had the following unit costs when 9,000 units were produced.  Compute the total product cost per unit under variable costing if 30,000 units had been produced.

Accepted Answer

The answer of Under absorption costing, a company had the...

Question 9

A company is currently operating at 80% capacity producing 5,000 units. Current cost information relating to this production is shown in the table below:  The company has been approached by a customer with a request for a 100-unit special order. What is the minimum per unit sales price that management would accept for this order if the company wishes to increase current profits?

Accepted Answer

The answer of A company is currently operating at 80%...

Question 10

Geneva Company manufactures dolls that are sold to various customers. The company works at full capacity for half the year to meet peak demand, and operates at 80% capacity for the other half of the year. The following information is provided:  Geneva receives a purchase order to make 5,000 dolls as a one-time event. The good news is that this order is during a period when Geneva does have excess capacity. What is the lowest selling price Geneva should accept for this purchase order?

Accepted Answer

The answer of Geneva Company manufactures dolls that are sold...

Question 11

Under absorption costing, a company had the following unit costs when 9,000 units were produced.  Compute the total product cost per unit under absorption costing if 25,000 units had been produced.

Accepted Answer

The answer of Under absorption costing, a company had the...

Question 12

Which of the following statements is true regarding variable costing?

Accepted Answer

Variable costing only includes costs that vary with production level in product costs, whereas fixed costs are expensed as period costs. This approach is useful for analyzing the impact of changes in production volume on profitability.

Question 13

Which of the following best describes costs assigned to the product under the absorption costing method? Direct labor (DL)
Direct materials (DM)
Variable selling and administrative (VSA)
Variable manufacturing overhead (VOH)
Fixed selling and administrative (FSA)
Fixed manufacturing overhead (FOH)

Accepted Answer

Absorption costing assigns all direct material, direct labor, variable overhead and fixed overhead costs to the product. Therefore, the best choice is C which includes all of these cost types.

Question 14

Mentor Corp. has provided the following information for the current year:  Calculate the unit product cost using absorption costing.

Accepted Answer

To calculate the unit product cost using absorption costing, we need to add up all the manufacturing costs (direct materials, direct labor, and manufacturing overhead) and divide it by the number of units produced. Using the information given, the total manufacturing cost is $693,000 (direct materials of $110,000 + direct labor of $440,000 + manufacturing overhead of $143,000). The number of units produced is 2,820 units. Therefore, the unit product cost is $245 ($693,000/2,820 units).

Question 15

Which of the following statements is true?

Accepted Answer

Under variable costing, fixed manufacturing overhead is treated as a period expense, meaning it is expensed in the period it is incurred, rather than being allocated to the cost of goods sold like variable costs (direct materials, direct labor, and variable manufacturing overhead).

Question 16

Income ________ when there is zero beginning inventory and all inventory units produced are sold.

Accepted Answer

When there is zero beginning inventory and all units produced are sold, there is no difference in inventory levels to affect income, so income will be the same under both variable and absorption costing.

Question 17

Which of the following statements is true?

Accepted Answer

Variable costing treats fixed overhead as a period cost, meaning that it is expensed in the period in which it is incurred rather than being included in the cost of goods sold. This is in contrast to absorption costing, which includes all manufacturing costs, fixed and variable, in the cost of goods sold.

Question 18

A company is currently operating at 75% capacity and producing 3,000 units. Current cost information relating to this production is shown in the table below:  The company has been approached by a customer with a request for a 200-unit special order. What is the minimum per unit sales price that management would accept for this order if the company wishes to increase current profits?

Accepted Answer

The answer of A company is currently operating at 75%...

Question 19

Under absorption costing, a company had the following unit costs when 8,000 units were produced.  Compute the total production cost per unit under variable costing if 25,000 units had been produced.

Accepted Answer

The answer of Under absorption costing, a company had the...

Question 20

Which of the following best describes costs assigned to the product under the variable costing method? 
Direct labor (DL)
Direct materials (DM)
Variable selling and administrative (VSA)
Variable manufacturing overhead (VOH)
Fixed selling and administrative (FSA)
Fixed manufacturing overhead (FOH)

Accepted Answer

Variable costing only includes direct materials, direct labor, and variable manufacturing overhead as costs assigned to the product. Fixed costs, such as fixed manufacturing overhead and fixed selling and administrative expenses, are not included in the product cost calculation under variable costing.

Quiz 6: Variable Costing and Analysis

Using absorption costing, which of the following manufacturing costs are assigned to products?

Under absorption costing, which of the following statements is not true?

Mentor Corp. has provided the following information for the current year: Calculate the unit product cost using variable costing.

When the number of units sold exceeds the number of units produced, income reported under absorption costing will be lower than variable costing. Which of the following gives the best justification of the above statement?

Which of the following would be a line item for a variable costing income statement?

Which of the following statements is true regarding absorption costing?

When evaluating a special order, management should:

Under absorption costing, a company had the following unit costs when 9,000 units were produced. Compute the total product cost per unit under variable costing if 30,000 units had been produced.

Under absorption costing, a company had the following unit costs when 9,000 units were produced. Compute the total product cost per unit under absorption costing if 25,000 units had been produced.

Which of the following statements is true regarding variable costing?

Which of the following best describes costs assigned to the product under the absorption costing method? Direct labor (DL) Direct materials (DM) Variable selling and administrative (VSA) Variable manufacturing overhead (VOH) Fixed selling and administrative (FSA) Fixed manufacturing overhead (FOH)

Mentor Corp. has provided the following information for the current year: Calculate the unit product cost using absorption costing.

Which of the following statements is true?

Income ________ when there is zero beginning inventory and all inventory units produced are sold.

Which of the following statements is true?

Under absorption costing, a company had the following unit costs when 8,000 units were produced. Compute the total production cost per unit under variable costing if 25,000 units had been produced.

Which of the following best describes costs assigned to the product under the variable costing method? Direct labor (DL) Direct materials (DM) Variable selling and administrative (VSA) Variable manufacturing overhead (VOH) Fixed selling and administrative (FSA) Fixed manufacturing overhead (FOH)