In a recent period, Marvel Co. incurred $20,000 of fixed manufacturing overhead and deducted $30,000 of fixed manufacturing overhead. Marvel Co. must be using

26. In a recent period, Marvel Co. incurred $20,000 of fixed manufacturing overhead and deducted $30,000 of fixed manufacturing overhead. Marvel Co. must be using

A.  absorption costing.                                   C.  direct costing.

B.  variable costing.                                       D.  standard costing.

27. Under absorption costing, if sales remain constant from period 1 to period 2, the company will report a larger income in period 2 when

A.  period 2 production exceeds period 1 production.

B.  period 1 production exceeds period 2 production.

C.  variable production costs are larger in period 2 than period 1.

D.  fixed production costs are larger in period 2 than period 1.

28. Other things being equal, net income computed by direct costing method would exceed net income computed by absorption costing method if

A.  Units sold were to exceed units produced.

B.  Fixed manufacturing costs were to increase.

C.  Units produced were to exceed units sold.

D.  Variable manufacturing costs were to increase.

29. Net income is lower under variable costing than under absorption costing when

A. Production increases from the previous period.

B. Production exceeds sales.

C. Production equals sales.

D. Production is less than sales.

30. President X of WXY Corporation requested you to explain the difference of net income between the variable costing income statements presentation and the absorption costing method.  You would say that the difference

A.  Is none if there is no change in the fixed costs in the beginning and ending inventories.

B.  Is equal to the fixed costs per unit times the number of units sold.

C.  Is attributable to the variable costs in the inventory.

D.  Is attributable to the fixed costs in ending inventory.

31. If inventory quantities increase during a period,

A. Variable costing profits will exceed absorption costing profits.

B. Absorption costing profits will exceed variable costing profits.

C. Variable costing profits will equal absorption costing profits.

D. Variable costing will show a higher inventory value than absorption costing.

32. A manufacturing company prepares income statements using both absorption- and variable-costing methods.  At the end of the period, actual sales revenues, total gross margin, and total contribution margin approximated budgeted figures, whereas net income was substantially below the budgeted amount.  There were no beginning or ending inventories.  The most likely explanation of the net income shortfall is that, compared to budget, actual

A.  Sales price and variable costs had declined proportionately.

B.  Sales prices had declined proportionately more than variable costs.

C.  Manufacturing fixed costs had increased.

D.  Selling and administrative fixed expenses had increased.

33. As compared with total absorption costing profit over the entire life of a company, total variable costing profit will

A. Be less.

B. Be greater.

C. Be equal.

D. Be substantially greater or less depending upon external factors

34. How will a favorable volume variance affect net income under each of the following methods?

	A.	B.	C.	D.
Absorption	Reduce	Reduce	Increase	Increase
Variable	No effect	Increase	No effect	Reduce

35. A single-product company prepares income statements using both absorption and variable costing methods.  Manufacturing overhead cost applied per unit produced in 2001 was the same as in 2000.  The 2001 variable costing statement reported a profit whereas the 2001 absorption costing statement reported a loss.  The difference in reported income could be explained by units produced in 2001 being

A.  Less than units sold in 2001.

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 2001.