All of the following are names for the product costing method in which both fixed and variable costs are included in overhead rates, except:

11. All of the following are names for the product costing method in which both fixed and variable costs are included in overhead rates, except:

A.  absorption costing                                    C.  direct costing 

B.  conventional costing                                D.  full costing

12. 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 on the sum-of-the-year’s digits method.

D.  An increase in the commission paid to salesman for each unit sold.

13. Under absorption costing, fixed manufacturing overhead could be found in all of the following except the

A.  work-in-process account.                         C.  Cost of Goods Sold.

B.  finished goods inventory account.            D.  period costs.

14. If unit costs remain unchanged and sales volume and sales price per unit both increase from the preceding period when operating profits were earned, operating profits must

A. Increase under the absorption costing method.

B. Increase under the variable costing method.

C. Decrease under the absorption costing method.

D. Decrease under the variable costing method.

15. 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. 

16. Jansen, Inc. 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, Jansen’s 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.

17. A firm presently has total sales of $100,000. If its sales rise, its

A.  net income based on variable costing will go up more than its net income based on absorption costing.

B.  net income based on absorption costing will go up more than its net income based on variable costing.

C.  fixed costs will also rise.

D.  per unit variable costs will rise.

18. Both Company Y and Company Z produce similar products that need negligible distribution costs.  Their assets operation and accounting are very similar in all respects except that Company Y uses direct costing and Company Z uses absorption costing.

A.  Co. Y would report a higher inventory value than Co. Z for the years in which production exceeds sales

B.  Co. Y would report a higher inventory value than Co. Z for the years in which production exceeds the normal or practical capacity

C.  Co. Z would report a higher inventory value than Co. Y for the years in which production exceeds sales

D.  Co. Z would report a higher net income than Co. Y for the years in which production equals sales

19. 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.

 

20. Absorption costing and variable costing are two different methods of assigning costs to units produced. Of the following five cost items listed, identify the one that is not correctly accounted for as a product cost.

		Part of Product Cost under
		Absorption Cost	Variable Cost
A.	Manufacturing supplies	Yes	Yes
B.	Insurance on factory	Yes	No
C.	Direct labor cost	Yes	Yes
D.	Packaging and shipping costs	Yes	Yes

 

21. 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.                                  C.  Variable costing.

B.  Direct costing.                                          D.  Standard direct costing.

22. Unabsorbed fixed overhead costs in an absorption costing system are

A.  fixed manufacturing costs not allocated to units produced.

B.  variable overhead costs not allocated to units produced.

C.  excess variable overhead costs.

D.  costs that cannot be controlled.

23. When a firm prepares financial reports by using absorption costing

A.  Profits will always increase with increases in sales.

B.  Profits may decrease with increased sales even if there is no change in selling prices and costs.

C.  Decreased output and constant sales result in increased profits.

D.  Profits will always decrease with decreases in sales.

24. Variable costing and absorption costing will show the same incomes when there are no

A. beginning inventories.                              C. variable costs.

B. ending inventories.                                   D. beginning and ending inventories.

25. Absorption costing differs from variable costing in that

A. standards can be used with absorption costing, but not with variable costing.

B. absorption costing inventories are more correctly valued.

C. production influences income under absorption costing, but not under variable costing.

D. companies using absorption costing have lower fixed costs.