Which of the following must be known about production process in order to institute a direct costing system?

Direct costing

1.   A basic tenet of direct costing is that period 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 current costs of doing business.

2.   In a variable costing system, product cost includes

A.  direct materials, direct labor, variable overhead

B.  direct materials, direct labor, fixed overhead

C.  direct labor, variable overhead, fixed overhead

D.  direct materials, variable overhead, fixed overhead

3.   Which of the following must be known about production process in order to institute a direct costing system?

A.  The variable and fixed components of all costs related to production.

B.  The controllable and noncontrollable 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.

4.   Under the direct 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-years’-digits method.

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

5.   Which of the following statements is true for a firm that uses variable (direct) costing?

A.  The cost of a unit of product changes because of changes in the number of units manufactured.

B.  Profits fluctuate with sales

C.  An idle facility variation is calculated

D.  Product costs include “direct” (variable) administrative costs.

6.   Which of the following is an argument against the use of direct (variable) costing?

A.  Absorption costing overstates the balance sheet value of inventories.

B.  Variable factory overhead is a period cost.

C.  Fixed factory overhead is difficult to allocate properly.

D.  Fixed factory overhead is necessary for the production of a product.

 

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7.   Advocates of variable costing for internal reporting purposes do not rely on which of the following points?

A.  The matching concept

B.  Price-volume relationships

C.  Absorption costing does not include selling and administrative expenses as part of inventoriable cost

D.  Production influences income under absorption costing

8.   Which costing method is not acceptable to the SFAS external reporting?

A.  absorption costing                           C.  full costing

B.  variable costing                                D.  all of these are acceptable

9.   Variable costing can be used for

A.  external reporting

B.  internal reporting

C.  either external reporting or internal reporting

D.  neither external reporting nor internal reporting

10. Which of the following is not true of variable costing?

A.  Profits may increase though sales decrease.

B.  Profits fluctuate with sales.

C.  The cost of the product consists of all variable production costs.

D.  The income statement under variable costing does not include overhead volume variance.

Contribution margin format income statement

11. When variable costing is used, the income statement is usually prepared using

A.  a contribution margin format          C.  a functional format

B.  an operational format                      D.  all of these