1. Which of the following statements is correct?

a. In a variable costing income statement, sales revenue is typically higher than in

absorption costing income statement.
b. When production is not equal to sales, income under absorption costing differs from
income under variable costing due to the difference in treatment (product cost and
period cost) of the fixed overhead cost under the two costing methods.
c. In a variable costing system, fixed overhead cost is included as part of the cost of
inventory.
d. In an absorption costing system, fixed overhead cost is treated as a period cost
2. Which of the following statements is true?
a. Depreciation expense is always a product cost.
b. Depreciation expense is always a period cost.
c. Selling and administrative costs, whether variable or fixed, is always treated as period
costs under both the absorption and variable costing systems.
d. Income under absorption costing is always greater than income under variable costing.
3. If production is less than sales (in units), then absorption costing net income will generally
be
a. greater than variable costing net income.
b. less than variable costing net income.
c. equal to variable costing net income.
d. less than expected.
4. If a firm uses variable costing,
a. its product costs include variable selling and administrative costs.
b. its profits fluctuate with sales.
c. it calculates an idle facility variation.
d. its product cost per unit changes because of changes in the number of units produced.
5. The inventory costing method that treats direct manufacturing costs and indirect
manufacturing costs, both variable and fixed, as inventoriable costs is called
a. variable costing.
b. absorption costing.
c. conversion costing.
d. perpetual inventory.
6. Which of the following statements regarding absorption and variable costing is correct?
a. Absorption costing results in higher income when finished goods inventory increases.
b. Variable manufacturing costs are lower under absorption costing.
c. Overhead costs are treated in the same manner under both variable and absorption
costing methods.
d. Profits are always the same under the two costing methods.
7. Which of the following cost items is not correctly accounted for as a product cost under
absorption and variable costing?

PRODUCT COST UNDER

ABSORPTION VARIABLE
a. Shipping Costs No No
b. Straight-line depreciation
Yes Yes
of factory equipment
c. Factory Supplies Yes Yes
d. Direct materials Yes Yes
8. Which of the following must be known about a production process to institute a variable
costing system?
a. The direct and indirect costs related to production
b. Standard quantities and prices for all production inputs
c. The variable and fixed components of manufacturing costs
d. The capacity level or denominator level to be used in allocating fixed overhead costs
9. What costs are treated as product cost under variable costing?
a. All variable costs
b. All direct costs only
c. All manufacturing costs
d. Only variable production costs
10. Which of the following would most likely decrease the product cost per unit under variable
costing?
a. A decrease in the commission paid to salesmen for each unit sold
b. An increase in the number of units sold
c. A decrease in the remaining useful life of a factory equipment depreciated using the
straight-line method
d. An increase in the remaining useful life of a factory equipment depreciated on the units-
of-production method
11. On the variable costing income statement, the difference between the "contribution
margin" and "income before income tax" is equal to
a. the total operating expenses
b. the total fixed costs
c. fixed selling and administrative expenses
d. the total variable costs
12. Under variable costing, all fixed costs are expensed during the current period because
a. fixed costs are usually immaterial in amount.
b. fixed costs are non-controllable costs.
c. fixed costs are incurred whether or not there is production, so it is not proper to allocate
these costs to production and defer a current cost of doing business.
d. allocation of fixed costs is usually done arbitrarily and could lead to erroneous decision
by management.
13. Which of the following statements is incorrect?
a. In a variable costing income statement, variable selling and administrative expenses
are used both in the computation of contribution margin and operating income
b. When using a variable costing system, the contribution margin (CM) discloses the
excess of revenues over variable costs.
c. In an income statement prepared as an internal report using the variable costing
method, fixed FOH is used in the computation of operating income and contribution
margin.
d. Using absorption costing, fixed manufacturing overhead costs are best described as
indirect product cost.
14. A company prepares income statement using both absorption and variable costing
methods. At the end of the period, a comparison of actual and budgeted results revealed
 that the actual net income was substantially above the budgeted net income, although
actual sales, gross margin, and contribution margin approximated the budgeted figures.
There were no beginning or ending inventories during the period. The most likely
explanation of the increase in net income is that, compared to budget, actual
a. selling price was higher.
b. variable costs was lower.
c. fixed selling and administrative costs was lower.
d. fixed factory overhead costs was lower.
15. Income under absorption costing may differ from income under variable costing. The
difference in income between the two costing methods is equal to the change in the
quantity of all units
a. produced multiplied by the variable manufacturing cost per unit.
b. sold multiplied by the fixed factory overhead cost per unit.
c. in inventory multiplied by the fixed factory overhead cost per unit.
d. sold multiplied by the selling price per unit.
16. Net income computed using absorption costing can be reconciled to net income computed
using variable costing by computing the difference between
a. the gross profit under absorption costing and contribution margin under variable
costing.
b. the product costs per unit under the two costing methods.
c. inventoried fixed factory overhead costs in the beginning and ending finished goods
inventories.
d. the selling prices under the two costing methods.
17. A company prepares income statements using both the absorption and variable costing
methods. During the year, the income amounts under the two methods are not equal. The
difference in income figures could have been due to the following, except
a. a change in the finished goods inventory.
b. a change in the selling price of the products
c. an excess of production volume over sales volume.
d. an excess of sales volume over production volume.

ITEMS 18 to 22 ARE BASED ON THE FOLLOWING INFORMATION:

During January 200A, Liquigan, Inc. produced 1,000 units of Product A with costs as follows:

Materials 6,000
Labor 3,300
Variable factory overhead 2,500
Fixed factory overhead 1,500
Total manufacturing costs 13,300

Selling and administrative costs incurred during the month were:

Variable selling and administrative 3,000
Fixed selling and administrative 2,000
5,000

Selling price per unit 20

Liquigan, Inc. uses the JIT system. It does not keep inventories in stock.

18. What amount should be considered product cost for external reporting purposes?
a. P13.30
b. P18.30
c. P11.80
d. P14.80
19. What is the product cost per unit under variable costing?
a. P13.30
b. P18.30
c. P11.80
d. P14.80
20. What is the variable cost per unit for purposes of computing the contribution margin?
a. P13.30
b. P18.30
c. P11.80
d. P14.80
21. Under absorption costing, income for January 200A was
a. P8,200.
b. P5,200.
c. P6,700.
d. P1,700.
22. What would income be if variable costing were used?
a. Equal to income under absorption costing because that should always be the case.
b. Equal to income under absorption costing because the total fixed overhead costs
expensed under both methods are the same.
c. An amount greater than that under absorption costing because production is equal to
sales.
d. An amount less than that under absorption costing because there is no change in
inventory.
23. MD Santos Corporation's 200A manufacturing costs were as follows:

Prime costs 560,000

Variable manufacturing overhead costs 80,000
Straight-line depreciation of factory building and equipment 60,000
Factory supervisor's salary (P8,000 per month) 96,000
Other fixed factory overhead 40,000

What amount should be considered product cost for external reporting purposes?
a. P680,000
b. P196,000
c. P640,000
d. P836,000
ITEMS 24 to 25 ARE BASED ON THE FOLLOWING INFORMATION: During the month of May, Vinarao
Corp. produced and sold 12,000 units of a product. Manufacturing and selling costs incurred
during May were:

Direct materials and direct labor 480,000

Variable factory overhead 108,000
Fixed factory overhead 24,000
Variable selling costs 12,000

24. The product's unit cost under variable costing was

a. P51.
b. P49.
c. P52.
d. P50.
25. The product's unit cost under absorption costing was
a. P51.
b. P49
c. P52
d. P50.
26. Throughput costing
a. treats all costs as period costs except for direct materials.
b. is very suitable for companies where labor and overhead are variable costs.
c. results in higher income than does variable costing when production exceeds sales.
d. penalizes low production and rewards high production.
27. When production exceeds sales
a. income under variable costing is greater than income under absorption costing.
b. income under throughput costing is greater than income under variable costing.
c. income under throughput costing is greater than income under absorption costing.
d. throughput costing will show the least income among the three (absorption, variable,
and throughput) costing methods.
28. Once a company has reduced inventories to zero,
a. throughput costing income will be higher than variable costing income.
b. absorption costing income will be higher than throughput costing income.
c. absorption costing, variable costing, and throughput costing income will be equal.
d. the company has reached its breakeven point.