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    MAS.m-1415 Variable Costing

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    Charry Ramos
    1. Variable costing considers direct materials, direct labor, and variable manufacturing overhead as product costs. Absorption costing considers all manufacturing costs, including fixed overhead, as product costs. 2. Variable costing results in a higher net income when production exceeds sales, as it does not absorb fixed overhead into inventory. Absorption costing results in a lower net income in this case, as it defers fixed overhead into ending inventory. 3. The key difference between variable and absorption costing is the treatment of fixed manufacturing overhead. Variable costing does not consider fixed overhead as a product cost, while absorption costing does. This leads to differences in reported income when production levels differ from sales volumes.

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    MAS.m-1415 Variable Costing

    Uploaded by

    Charry Ramos
    5K views7 pages
    1. Variable costing considers direct materials, direct labor, and variable manufacturing overhead as product costs. Absorption costing considers all manufacturing costs, including fixed overhead, as product costs. 2. Variable costing results in a higher net income when production exceeds sales, as it does not absorb fixed overhead into inventory. Absorption costing results in a lower net income in this case, as it defers fixed overhead into ending inventory. 3. The key difference between variable and absorption costing is the treatment of fixed manufacturing overhead. Variable costing does not consider fixed overhead as a product cost, while absorption costing does. This leads to differences in reported income when production levels differ from sales volumes.

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    1. Variable costing considers direct materials, direct labor, and variable manufacturing overhead as product costs. Absorption costing considers all manufacturing costs, including fixed overhead, as product costs. 2. Variable costing results in a higher net income when production exceeds sales, as it does not absorb fixed overhead into inventory. Absorption costing results in a lower net income in this case, as it defers fixed overhead into ending inventory. 3. The key difference between variable and absorption costing is the treatment of fixed manufacturing overhead. Variable costing does not consider fixed overhead as a product cost, while absorption costing does. This leads to differences in reported income when production levels differ from sales volumes.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    5K views7 pages

    MAS.m-1415 Variable Costing

    Uploaded by

    Charry Ramos
    1. Variable costing considers direct materials, direct labor, and variable manufacturing overhead as product costs. Absorption costing considers all manufacturing costs, including fixed overhead, as product costs. 2. Variable costing results in a higher net income when production exceeds sales, as it does not absorb fixed overhead into inventory. Absorption costing results in a lower net income in this case, as it defers fixed overhead into ending inventory. 3. The key difference between variable and absorption costing is the treatment of fixed manufacturing overhead. Variable costing does not consider fixed overhead as a product cost, while absorption costing does. This leads to differences in reported income when production levels differ from sales volumes.

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    © All Rights Reserved
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    The document discusses cost accounting concepts such as absorption costing, variable costing, and the treatment of fixed and variable costs.

    Absorption costing includes both fixed and variable manufacturing overhead in inventory valuation, while variable costing includes only variable manufacturing overhead. Absorption costing results in higher inventory valuation and higher net income when production exceeds sales.

    The advantage of variable costing is that it focuses on relevant costs for decision making. The disadvantage is that it does not reflect all costs of production and may encourage short-term decision making.

    MAS.M-1415.Variable Costing.

    MC
    MULTIPLE CHOICE QUESTIONS
    1. In absorption costing, as contrasted with direct costing, the following are
    absorbed into inventory.
    A. Only the variable manufacturing overhead.
    B. All the elements of fixed and variable manufacturing overhead.
    C. Only the fixed manufacturing overhead.
    D. Neither fixed nor variable manufacturing overhead.
    2. Which of the following is a term more descriptive of the type of cost
    accounting often called direct costing.
    A. Relevant Costing
    C. Variable Costing
    B. Out-of-pocket costing
    D. Prime Costing
    3. A criticism of variable costing for managerial accounting purpose is that it.
    A. Might encourage managers to emphasize the short term at the expense of
    the long term.
    B. Is not acceptable for product line segmented reporting
    C. Does not reflect cost-volume-profit relationships.
    D. Overstate inventories
    4. Variable costing considers which of the following product costs?
    Fixed
    Fixed
    Variable
    Variable
    Mfg.
    Selling &
    Mfg.
    Selling &
    Costs
    Adm.
    Costs
    Adm.
    A.
    no
    no
    yes
    no
    B.
    yes
    no
    yes
    no
    C.
    no
    no
    yes
    yes
    D.
    Yes
    no
    yes
    yes
    5. Inventory under the variable costing includes
    A. Direct materials cost, direct labor cost, but no factory overhead cost.
    B. Direct materials cost, direct labor cost, and variable factory overhead.
    C. Prime cost but not conversion cost.
    D. Prime cost and all conversion cost.
    6. If production is greater than sales (units), then absorption costing net income
    will generally be
    A. Equal to direct costing net income.
    B. Greater than direct costing net income
    C. Less than direct costing net income.
    D. Additional data is needed to be able to answer.
    7. Which of the following statements is correct?
    A. When production is lower than sales, variable costing net income is lower
    than absorption costing net income.
    B. When production is higher than sales, absorption costing net income is
    lower than variable costing net income.

    C. If all the products manufactured during the period are sold in that period,
    variable costing net income is equal to absorption costing net income.
    D. When production and sales level are equal, variable costing net income is
    lower than absorption costing net income.
    8. An
    A.
    B.
    C.
    D.

    unfavorable volume variance means that


    Actual output was less than the level used to set the standard fixed cost.
    Cost control was probably poor.
    Absorption costing income is lower than variable costing income.
    Actual output was more than the level used to set the standard fixed cost.

    9. Normal costing differs from actual costing in treating


    A. Direct labor and overhead
    B. Materials, direct labor, and overhead
    C. Materials and direct labor
    D. Overhead.
    10.Under absorption costing, if sales remain constant from period 1 to period 1,
    the company will report a larger income in period 2 when
    A. Variable production costs are larger in period 2 than period 1
    B. Period 2 production exceeds period 1 production
    C. Period 1 production exceeds period 2 production
    D. Fixed production costs are larger in period 2 than period 1
    11.Absorption costing differs from variable costing in all of the following except
    A. Acceptability for external repoting
    B. Treatment of fixed manufacturing overhead
    C. Treatment of variable production costs.
    D. Arrangement of the income statement.

    12.Variable costing considers which of the following to be product costs?


    Fixed
    Fixed
    Variable
    Variable
    Mfg.
    Selling &
    Mfg.
    Selling &
    Costs
    Adm.
    Costs
    Adm.
    A.
    B.
    C.
    D.

    no
    yes
    yes
    no

    no
    no
    no
    no

    yes
    yes
    yes
    yes

    yes
    no
    yes
    no

    13.The variable costing method ordinarily includes in product costs the following:

    A. Prime cost but not conversion cost.


    B. Direct materials cost, direct labor cost, but no manufacturing overhead
    cost.
    C. Direct materials cost, direct labor cost, and variable manufacturing
    overhead cost.
    D. Prime cost and all conversion cost.
    14.Net income determined using full absorption costing can be reconciled to net
    income determined using variable costing by computing the difference
    between them.
    A. Gross margin (absorption costing method) and contribution margin
    (variable costing method).
    B. Fixed manufacturing overhead costs deferred in or released from
    inventories.
    C. Inventoried discretionary costs in the beginning and ending inventory.
    D. Sales as recorded under the variable costing method and sales as
    recorded under the absorption costing method.
    15.Samar Industries manufactures a single product. Variable production costs
    are P20 and fixed production costs are P300,000. Rounder uses a normal
    activity of 20,000 units to set its standard costs. Rounder began the year with
    no inventory, produced 22,000 units, and sold 21,000 units. The volume
    variance under absorption costing would be
    A. P20,000
    B. P30,000
    C. 0
    D. Some other number
    16.Tacloban Industries manufactures a single product. Variable production costs
    are P20 and fixed production costs are P300,000. Rounder uses a normal
    activity of 20,000 units to set its standard costs. Rounder began the year with
    no inventory, produced 22,000 units, and sold 21,000 units. The standard
    cost of goods sold under variable costing would be
    A. P735,000
    B. P400,000
    C. P420,000
    D. Some other number.

    Question 17 and 18 are based on the following information. The excerpt presented
    below was taken from Smurf Companys records for the fiscal year ended November
    30:
    Direct materials used
    P300,000
    Direct labor
    100,000
    Variable factory overhead
    50,000
    Fixed factory overhead
    80,000
    Selling and administrative cost - variable
    40,000
    Selling and administrative cost fixed
    20,000

    17.If Smurf Company uses variable costing, the inventoriable costs for the
    current fiscal year are
    A. 530,000
    C. 450,000
    B. 400,000
    D. 490,000
    18.Using absorption (full) costing, inventoriable costs are
    A. P530,000
    C. 450,000
    B. P400,000
    D. 590,000
    19.Compute for the inventory under the direct costing method using the data
    given: units unsold at the end of the period 45,000; raw materials used, P6.00
    per unit; raw materials inventory, beginning, P5.90 per unit; direct labor,
    P3.00 per unit; variable overhead per unit, P2.00 per unit; indirect labor for
    the month, P33,750. Total fixed costs, P67,500.
    A. P17.45
    C. P11.00
    B. P16.90
    D. P19.15
    20.Care Companys 2013 fixed manufacturing overhead cost totaled P100,000
    and variable seliing costs totaled P80,000. Under direct costing, how should
    these costs be classified?
    Period Cost
    Product Cost
    A.
    P
    0
    P 180,000
    B.
    P 80,000
    P 100,000
    C.
    P 100,000
    P 80,000
    D.
    P 180,000
    P
    0
    21.With a production of 200,000 units of product A during the month of June,
    Bucayao Corporation had incurred costs as follows:
    Direct Materials
    P 200,000
    Direct labor used
    135,000
    Manufacturing overhead:
    Variable
    75,000
    Fixed
    90,000
    Selling and administrative expenses:
    Variable
    30,000
    Fixed
    85,000
    Total
    P 615,000
    Under absorption costing, the unit cost of product A was:
    A. P 2.05
    C. P 2.50
    B. P 2.20
    D. P 3.25

    22.LY & Company completed its first year of operations during which time the
    following information were generated:
    Total units produced
    100,000
    Total units sold
    80,000 at 100 per unit
    Work in process ending inventory cost
    Fixed cost Factory Overhead
    P 1.2 million
    Selling and administrative
    P 0.7 million
    Per unit variable cost

    Raw materials
    P 20.00
    Direct labor
    12.50
    Factory Overhead
    7.50
    Selling and administrative
    10.00
    If the company used the variable (direct) costing method, the operating
    income would be
    A. P 3,040,000
    C. P 4,000,000
    B. P 2,100,000
    D. P 2,480,000
    23.CERTS for life, Inc., manufactures a single product for which the costs and
    selling prices are:
    Variable production costs
    P 50 per unit
    Selling price
    P 125 per unit
    Fixed production overhead
    P 200,000 per quarter
    Fixed selling and administrative overhead
    P 80,000 per quarter
    Normal capacity is 20,000 units per quarter. Production in the first quarter
    was 19,000 units and sales volume was 16,000 units. No opening inventory
    for the quarter. The absorption costing profit for the quarter was:
    A. P 920,000
    C. P 960,000
    B. P 950,000
    D. P 970,000
    Questions 24 and 25 are based on the following information: The following
    operating data are available from the records of Sheena Company for the month of
    January 2013:
    Sales (P70 per unit)
    P 210,000
    Direct materials
    59,200
    Direct labor
    48,000
    Manufacturing overhead:
    Fixed
    36,080
    Variable
    24,000
    Marketing and general expenses:
    Fixed
    11,000
    Variable
    5% of sales
    Production in units
    3,200 units
    Beginning inventory
    none
    24.The ending finished goods inventory under absorption costing would be:
    A. P 14,280
    C. P 12,096
    B. P 16,968
    D P 16,072
    25.The net income for the month under the variable costing method would be:
    A. P 32,420
    C. P 23,320
    B. P 25,500
    D. P 22,420
    Questions 26 and 27 are based on the following information. The books of Mariposa
    Company pertaining to the year ended December 31, 2013 operations, showed the
    following figures relating to product A:
    Beginning inventory-FG and WIP
    none
    No. of units produced
    40,000
    No. of units sold at 15
    32,500
    Direct materials used
    P 177,500

    Direct labor used


    P 85,000
    Fixed
    P 110,000
    Variable
    61,500_
    P 171,500
    Fixed admin expenses
    P 30,000
    26.Under variable costing, what would be the finished goods inventory as at
    December 31, 2013?
    A. P 81,375.00
    C. P 87,000.00
    B. P 60,750.00
    D. P 49,218.75
    27.Which costing method, variable or absorption costing, would show a higher
    operating income for 2013 and by how much?
    A. Variable by P 20,625
    C. variable by P 26,250
    B. Absorption by P 20,625
    D. absorption by P 26,250
    28.During the year 2013, Good Health Corporation manufactured 70,000 units of
    product A, a new product. Only 65,000 units were sold during the year. There
    was no beginning inventory. Manufacturing cost per unit was P20.00 variable
    and P50.00 fixed. What would be the effect in net income if absorption
    costing is used instead of variable costing?
    A. Profit is P 100,000 lower
    C. Profit is P250,000
    higher
    B. Profit is P 250,000 lower
    D. None of the above.
    Use the following information for questions 29 and 30: The following information has
    been extracted from P Co.s financial records for its first year of operations:
    Units produced, 10,000
    Units sold, 7,000
    Variable costs per unit:
    Direct material, P 8
    Direct labor, 9
    Manufacturing overhead, 3
    SG&A, 4
    Fixed costs:
    Manufacturing overhead, P 70,000
    SG&A, 30,000
    29.Based on absorption costing, the Cost of Goods Manufactured for P Co.s first
    year would be
    A. P 200,000
    C. P 300,000
    B. P 270,000
    D. P 210,000
    30.Based on absorption costing, what amount of period costs will P Co. Deduct?
    A. P 70,000
    C. P 30,000
    B. P 79,000
    D. P 58,000
    31.Vladen Inc. reported the following data for 2013:
    Actual hours
    120,000
    Denominator hours
    150,000
    Standard hours allowed for output
    140,000
    Fixed predetermined overhead rate
    P 6 per hour

    Variable predetermined Over Head rate


    TYDs 2012 volume variance:
    A. No volume variance
    favorable
    B. P 60,000 which is neither favorable nor underapplied
    underapplied

    P 4 per hour
    C. P 60,000
    D. P 60,000

    32.Eastern Co. has total budgeted fixed costs of P150,000. Actual production of
    39,000 units resulted in a P 6,000 favorable volume variance. What normal
    capacity was used to determine the fixed overhead rate?
    A. P 40,560
    C. P 37,500
    B. P 33,000
    D. Cannot be determined without further
    information
    33.Calculating income under variable costing does NOT require knowing
    A. Unit sales
    C. unit production
    B. Selling price
    D. unit variable manufacturing costs.

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