Which of the following is a term more descriptive of the type of cost accounting often called

direct costing?
A. Out of pocket costing
B. Variable costing
C. Relevant costing
D. Prime costing

Which of the following is an argument against the use of variable costing?

A. Absorption costing overstates the balance sheet value of inventories
B. Variable manufacturing overhead is a period cost
C. Fixed manufacturing overhead is difficult to allocate properly
D. Fixed manufacturing overhead is necessary for the production of a product

In the application of variable costing as a cost-allocation process in manufacturing,

A. Variable direct costs are treated as period costs
B. Nonvariable indirect costs are treated as product costs
C. Variable indirect costs are treated as product costs
D. Nonvariable direct costs are treated as product costs

A basic tenet of variable costing is that fixed overhead costs should be currently expensed.
What is the rationale behind this procedure?
A. Period costs are uncontrollable and should not be charged to a specific product.
B. Period costs are generally immaterial in amount and the cost of assigning the amounts to
specific products would outweigh the benefits.
C. Allocation of period costs is arbitrary at best and could lead to erroneous decisions by
management.
D. Because period costs will occur whether or not production occurs, it is improper to
allocate these costs to production and defer a current cost of doing business.

Using the variable costing method, which of the following costs are assigned to inventory?
A. Variable S&A costs and Variable factory OH costs
B. Variable S&A costs
C. Neither
D. Variable factory OH costs

Which costing method is used for internal reporting and not for external reporting?
A. Activity-based costing
B. Job costing
C. Variable costing
D. Process costing

Cay Co.'s fixed manufacturing overhead costs for the month just ended totaled $100,000, and
variable selling costs totaled $80,000. Under variable costing, how should these costs be
classified?
A. Period cost: $0; Product Cost: $180,000
B. Period cost: $80,000; Product Cost: $100,000
C. Period cost: $100,000; Product Cost: $80,000
D. Period cost: $180,000; Product Cost: $0
Which of the following must be known about a production process to institute a variable costing
system?
A. The variable and fixed components of all costs related to production
B. The controllable and non controllable components of all costs related to production
C. Standard production rates and times for all elements of production
D. Contribution margin and breakeven point for all goods in production

What costs are treated as product costs under variable costing?

A. Only direct costs
B. Only variable production costs
C. All variable costs
D. All variable and fixed manufacturing costs

Under the variable-costing concept, unit product cost would most likely be increased by
A. A decrease in the remaining useful life of factory machinery depreciated on the units
of production method
B. A decrease in the number of units produced
C. An increase in the remaining useful life of factory machinery depreciated using the sum-of-
the-years'-digits method
D. An increase in the commission paid to salesmen for each unit sold

In an income statement prepared as an internal report using the variable costing method, which
of the following terms should appear?
A. Gross margin & operating income
B. Gross margin
C. Neither
D. Operating income

In an income statement prepared as an internal report using the variable costing method,
variable selling and admin expenses are
A. Not used
B. Treated the same as fixed selling and admin expenses
C. Used in the computation of operating income, but not used in the computation of the
contribution margin
D. Used in the computation of the contribution margin

In an income statement prepared as an internal report using the variable costing method, fixed
factory overhead would
A. Not be used
B. Be used in the computation of operating income but not in the computation of the
contribution margin
C. Be used in the computation of the contribution margin
D. Be treated the same as variable factory overhead

When using a variable costing system, the contribution margin discloses the excess of
A. Revenues over fixed costs
B. Projected revenues over the breakeven point
C. Revenues over variable costs
D. Variable costs over fixed costs

Which of the following statements is true for a firm that uses variable costing?
A. The cost of a unit of product changes because of changes in number of units manufactured
B. Profits fluctuate with sales
C. An idle facility variation is calculated
D. Product costs include variable administrative costs

In a company, products pass through some or all of the production departments during
manufacturing, depending upon the product being manufactured. Direct material and direct
labor costs are traced directly to the products as they flow through each production department.
Manufacturing overhead is assigned in each department using separate departmental
manufacturing overhead rates. The inventory costing method that the manufacturing company is
using in this situation is
A. Absorption costing
B. Activity-based costing
C. Backflush costing
D. Variable costing

Dowell Co. manufactures a wooden item. Which of the following is included with the inventorial
cost under absorption costing and excluded from the inventorial cost under variable costing?
A. Cost of electricity used to operate production machinery
B. Straight-line depreciation on factory equipment
C. cost of scrap pieces of lumber
D. Wages of assembly-line personnel

Using absorption costing, fixed manufacturing overhead costs are best described as
A. Direct period costs
B. Indirect period costs
C. Direct product costs
D. Indirect product costs

A manufacturing company prepares income statements using both absorption and variable
costing methods. At the end of a period, actual sales revenues, total gross profit, and total
contribution margin approximated budgeted figures, whereas net income was substantially
greater than the budgeted amount. There were no beginning or ending inventories. The most
likely explanation of the net income increase is that, compared to budget, actual
A. Manufacturing fixed costs had increased
B. Selling and admin fixed expenses had decreased
C. Sales prices and variable costs had increased proportionately
D. Sales prices had declined proportionately less than variable costs

In an income statement prepared as an internal report, total fixed costs normally are shown
separately under
A. Neither
B. Variable costing
C. Absorption costing & Variable costing
D. Absorption costing
B. Variable costing
A company pays bonuses to its managers based on operating income. The company uses
absorption costing, and overhead is applied on the basis of direct labor hours. To increase
bonuses, the managers may do all of the following except

A. Produce those products requiring the most direct labor

B. Defer expenses such as maintenance to a future period
C. Increase production schedules independent of customer demands
D. Decrease production of those items requiring the most direct labor

The management of a company computes net income using both absorption and variable
costing. This year, the net income under the variable-costing approach was greater than the net
income under the absorption-costing approach. This difference is most likely the result of

A. A decrease in the variable marketing expenses

B. An increase in the finished goods inventory
C. Sales volume exceeding production volume
D. Inflationary effects on overhead costs

Net profit under absorption costing may differ from net profit determined under variable costing.
This difference equals the change in the quantity of all units
A. In inventory times the relevant fixed costs per unit
B. Produced times the relevant fixed costs per unit
C. In inventory times the relevant variable cost per unit
D. Produced times the relevant variable cost per unit

A company's net income recently increased by 30% while its inventory increased to equal a full
year's sales requirements. Which of the following accounting methods would be most likely to
produce the favorable income results?
A. Absorption costing
B. Direct costing
C. Variable costing
D. Standard direct costing

When comparing absorption costing with variable costing, which of the following statements is
not true?
A. Absorption costing enables managers to increase operating profits in the short run by
increasing inventories
B. When sales volume is more than production volume, variable costing will result in higher
operating profit
C. A manager who is evaluated based on variable costing operating profit would be
tempted to increase production at the end of a period in order to get a more favorable
review
D. Under absorption costing, operating profit is a function of both sales volume and production
volume

Fleet Inc., manufactured 700 unites of Product A during the year. Product A's variable and fixed
manufacturing costs per unit were $6 and $2, respectively. The inventory of Product A on
December 31 consisted of 100 units. There was no inventory of Product A on January 1. What
would be the change in the dollar amount of inventory on December 31 if variable costing were
used instead of absorption costing?
A. $800 decrease
B. $200 decrease
C. $0
D. $200 increase

Given the following information, the total contribution margin is

Sales revenue $5,000
V. COGS 2,700
Full COGS 2,900
Fixed S&A expenses. 1,100
V. S&A expenses 800

A. $1,500 ($5,000-2,700-800=1,500)

B. $2,100
C. $3,900
D. $4,200

If the unit level of inventory increases during an accounting period, then

A. Less operating income will be reported under absorption costing than variable costing
B. More operating income will be reported under absorption costing than variable costing
C. Operating income will be the same under absorption costing and variable costing
D. The exact effect of operating income cannot be determined

One possible means of determining the difference between operating incomes for absorption
costing and variable costing is by
A. Subtracting sales of the previous period form sales of this period
B. Subtracting fixed manufacturing overhead in beginning inventory from fixed
manufacturing overhead in ending inventory
C. Multiplying the number of units produced by the budgeted fixed manufacturing cost rate
D. Adding fixed manufacturing costs to the production volume variance

When comparing the operating incomes between absorption costing and variable costing, and
beginning finished inventory exceeds ending finished inventory, it may be assumed that
A. Sales increased during the period
B. Variable cost per unit is less than fixed cost per unit
C. There is an unfavorable production volume variance
D. Variable costing operating income exceeds absorption costing operating income

Which of the following is false?

A. Absorption costing allocates fixed manufacturing overhead to actual units produced during
the period
B. Non-manufacturing costs are expensed in the future under variable costing
C. Fixed manufacturing costs in ending inventory are expensed in the future under absorption
costing
D. Operating income under absorption costing is higher than operating income under variable
costing when production units exceeds sales units
Under absorption costing, if a manager's bonus is tied to operating income, then increasing
inventory levels compared to last year would result in
A. Increasing the manager's bonus
B. Decreasing the manager's bonus
C. Not affecting the manager's bonus
D. Being unable to determine the manager's bonus using only the above information

Under variable costing, if a manager's bonus is tied to operating income, then increasing
inventory levels compared to last year would result in
A. Increasing the manager's bonus
B. Decreasing the manager's bonus
C. Not affecting the manager's bonus
D. Being unable to determine the manager's bonus using only the above information

In class ch. 9 #6
All of the following are examples of drawbacks of using absorption costing except:
A. Management has the ability to manipulate operating income via production schedules
B. Manipulation of operating income may ultimately increase the company's costs incurred over
the long run
C. Operating income solely reflects income from the sale of units and excludes the
effects of manipulating production schedules
D. Decreasing maintenance activities and increasing production result in increased operating
income

The budgeted fixed manufacturing cost rate is the lowest for

A. Practical capacity
B. Theoretical capacity
C. Master budget capacity utilization
D. Normal capacity utilization

Using master-budget capacity to set selling prices

A. Avoids the recalculation of unit costs when expected demand levels change
B. Spreads fixed costs over available capacity
C. Can result in a downward demand spiral
D. Uses the perspective of long run product pricing

The IRS requires the use of ______ for calculating fixed manufacturing costs per unit
A. Practical capacity
B. Theoretical capacity
C. Master budget capacity utilization
D. Normal capacity utilization

There is not an output level variance for variable costing because

A. The inventory level decreased during the period
B. The inventory level increased during the period
C. Fixed manufacturing overhead is allocated to WIP
D. Fixed overhead is not allocated to WIP
Under variable costing, fixed manufacturing overhead is:
A) carried in a liability account.
B) carried in an asset account.
C) ignored.
D) immediately expensed as a period cost.

Which of the following is true of a company that uses absorption costing?

A) Net operating income fluctuates directly with changes in sales volume.
B) Fixed production and fixed selling costs are considered to be product costs.
C) Unit product costs can change as a result of changes in the number of units manufactured.
D) Variable selling expenses are included in product costs.

Under absorption costing, fixed manufacturing overhead costs:

A) are deferred in inventory when production exceeds sales.
B) are always treated as period costs.
C) are released from inventory when production exceeds sales.
D) none of these.

Which of the following costs at a manufacturing company would be treated as a product cost
under both absorption costing and variable costing?
Variable overhead;
Variable selling and administrative
A) Yes; Yes
B) Yes; No
C) No; Yes
D) No; No

Under absorption costing, product costs include:

Fixed factory overhead;
Variable factory overhead
A) No; No
B) No; Yes
C) Yes; Yes
D) Yes; No

Which of the following are included in product costs under variable costing?
I. Variable manufacturing overhead.
II. Fixed manufacturing overhead.
III. Selling and administrative expenses.

A) I, II, and III.

B) I and III.
C) I and II.
D) I.

Under variable costing:

A) net operating income will tend to move up and down in response to changes in levels of
production.
B) inventory costs will be lower than under absorption costing.
C) net operating income will tend to vary inversely with production changes.
D) net operating income will always be higher than under absorption costing.

In an income statement prepared using the variable costing method, fixed selling and
administrative expenses would:
A) be used in the computation of the contribution margin.
B) be used in the computation of net operating income but not in the computation of the
contribution margin.
C) be treated the same as variable manufacturing expenses.
D) not be used.

In an income statement prepared using the variable costing method, fixed manufacturing
overhead would:
A) not be used.
B) be used in the computation of the contribution margin.
C) be used in the computation of net operating income but not in the computation of the
contribution margin.
D) be treated the same as variable manufacturing overhead.

In an income statement prepared as an internal report using variable costing, variable selling
and administrative expenses would:
A) not be used.
B) be used in the computation of the contribution margin.
C) be used in the computation of net operating income but not in the computation of the
contribution margin.
D) be treated the same as fixed selling and administrative expenses.

When production exceeds sales, the net operating income reported under absorption costing
generally will be:
A) less than net operating income reported under variable costing.
B) greater than net operating income reported under variable costing.
C) equal to net operating income reported under variable costing.
D) higher or lower because no generalization can be made.

When sales exceed production, the net operating income reported under variable costing
generally will be:
A) less than net operating income reported under absorption costing.
B) greater than net operating income reported under absorption costing.
C) equal to net operating income reported under absorption costing.
D) higher or lower because no generalization can be made.

A single-product company prepares income statements using both absorption and variable
costing methods. Manufacturing overhead cost applied per unit produced under absorption
costing in year 2 was the same as in year 1. The year 2 variable costing statement reported a
profit whereas the year 2 absorption costing statement reported a loss. The difference in
reported income could be explained by units produced in year 2 being:
A) Less than units sold in year 2.
B) Less than the activity level used for allocating overhead to the product.
C) In excess of the activity level used for allocating overhead to the product.
D) In excess of units sold in year 2.

The type of costing that provides the best information for breakeven analysis is:
A) job-order costing.
B) variable costing.
C) process costing.
D) absorption costing.

Advocates of variable costing argue that:

A) fixed production costs should be added to inventory because such costs have future service
potential and therefore are inventoriable as an asset.
B) fixed production costs should be capitalized as an asset and amortized over future periods
when benefits from such costs are expected to be received.
C) fixed production costs should be charged to the period in which they are incurred unless
sales do not equal production in which case any difference should be capitalized as an asset
and amortized over future periods.
D) fixed production costs should be charged to the period in which they are incurred.