Which of the following cost(s) are inventoried when using variable costing?

1)           Which of the following cost(s) are inventoried when using variable costing?

A)   direct manufacturing costs

B)   variable marketing costs

C)   fixed manufacturing costs

D)   Both A and B are correct. Answer: A

Diff: 1

Terms: variable costing Objective: 1

AACSB:  Reflective thinking

2)   Which of the following cost(s) are inventoried when using absorption costing?

A)   direct manufacturing costs

B)   variable marketing costs

C)   fixed manufacturing costs

D)   Both A and C are correct. Answer: D

Diff: 1

Terms: absorption costing Objective: 1

AACSB:  Reflective thinking

3)                                         is a method of inventory costing in which all variable manufacturing costs (direct and indirect) are included as inventoriable costs and all fixed manufacturing costs are excluded.

A)   Variable costing

B)   Mixed costing

C)   Absorption costing

D)   Standard costing Answer: A

Diff: 1

Terms: absorption costing Objective: 1

AACSB:  Reflective thinking

4)   Absorption costing is required for all of the following except:

A)   generally accepted accounting principles

B)   determining a competitive selling price

C)   external reporting to shareholders

D)   income tax reporting Answer: B

Diff: 2

Terms: absorption costing Objective: 1

AACSB:  Reflective thinking

5)   Absorption costing:

A)   expenses marketing costs as cost of goods sold

B)   treats direct manufacturing costs as a period cost

C)   includes fixed manufacturing overhead as an inventoriable cost

D)   is required for internal reports to managers Answer: C

Diff: 3

Terms: absorption costing Objective: 1

AACSB:  Reflective thinking

6)   Variable costing:

A)   expenses administrative costs as cost of goods sold

B)   treats direct manufacturing costs as a product cost

C)   includes fixed manufacturing overhead as an inventoriable cost

D)   is required for external reporting to shareholders Answer: B

Diff: 3

Terms: variable costing Objective: 1

AACSB:  Reflective thinking

7)                    method(s) expense(s) variable marketing costs in the period incurred.

A)   Variable costing

B)   Absorption costing

C)   Throughput costing

D)   All of these answers are correct. Answer: D

Diff: 1

Terms: variable costing, absorption costing, throughput costing Objective: 1

AACSB:  Reflective thinking

8)                    method(s) include(s) fixed manufacturing overhead costs as inventoriable costs.

A)   Variable costing

B)   Absorption costing

C)   Throughput costing

D)   All of these answers are correct. Answer: B

Diff: 1

Terms: absorption costing Objective: 1

AACSB:  Reflective thinking

9)                    method(s) expense(s) direct material costs as cost of goods sold.

A)   Variable costing

B)   Absorption costing

C)   Throughput costing

D)   All of these answers are correct. Answer: D

Diff: 1

Terms: variable costing, absorption costing, throughput costing Objective: 1

AACSB:  Reflective thinking

10)                    method(s) is required for tax reporting purposes.

A)   Variable costing

B)   Absorption costing

C)   Throughput costing

D)   All of these answers are correct. Answer: B

Diff: 1

Terms: absorption costing Objective: 1

AACSB:  Reflective thinking

11)                                                  is a method of inventory costing in which only variable manufacturing costs are included as inventoriable costs.

A)   Fixed costing

B)   Variable costing

C)   Absorption costing

D)   Mixed costing Answer: B

Diff: 1

Terms: variable costing Objective: 1

AACSB:  Reflective thinking

12)   Variable costing regards fixed manufacturing overhead as a(n):

A)   administrative cost

B)   inventoriable cost

C)   period cost

D)   product cost Answer: C Diff: 1

Terms: variable costing Objective: 1

AACSB:  Reflective thinking

13)   The only difference between variable and absorption costing is the expensing of:

A)   direct manufacturing costs

B)   variable marketing costs

C)   fixed manufacturing costs

D)   Both A and C are correct. Answer: C

Diff: 2

Terms: variable costing, absorption costing Objective: 1

AACSB:  Reflective thinking

Answer the following questions using the information below:

Gloria's Decorating produces and sells a mantel clock for $80 per unit. In 2011, 50,000 clocks were produced and 40,000 were sold. Other information for the year includes:

Direct   materials                                                          $30.00 per unit

Direct  manufacturing  labor              $  2.00 per unit Variable  manufacturing  costs                                                    $  3.00 per unit Sales   commissions      $  5.00 per part

Fixed  manufacturing  costs               $25.00 per unit Administrative expenses, all fixed      $15.00 per unit

14)      What is the inventoriable cost per unit using variable costing? A) $32

B) $35 C) $40 D) $60

Answer: B

Explanation: B) $30.00 + $2.00 + $3.00 = $35.00 Diff: 2

Terms: variable costing Objective: 1

AACSB:  Analytical skills

15)      What is the inventoriable cost per unit using absorption costing? A) $32

B) $35 C) $60 D) $80

Answer: C

Explanation: C) $30 + $2 + $3 + $25 = $60 Diff: 2

Terms: absorption costing Objective: 1

AACSB:  Analytical skills

16)      Which of the following inventory costing methods shown below is required by GAAP (Generally Accepted Accounting Principles) for external financial reporting?

A)   absorption costing

B)   variable costing

C)   throughput costing

D)   direct costing Answer:   A Diff: 2

Terms: absorption costing Objective: 1

AACSB:  Reflective thinking

17)   The contribution-margin format of the income statement:

A)   is used with absorption costing

B)   calculates gross margin

C)   distinguishes between manufacturing and nonmanufacturing costs

D)   is used with variable costing Answer: D

Diff: 2

Terms: variable costing Objective: 2

AACSB:  Reflective thinking

18)   The gross-margin format of the income statement:

A)   is used with variable costing

B)   is used with absorption costing

C)   calculates contribution margin

D)   distinguishes variable costs from fixed costs Answer: B

Diff: 2

Terms: absorption costing Objective: 2

AACSB:  Reflective thinking

19)   The contribution-margin format of the income statement:

A)   is used with absorption costing

B)   highlights the lump sum of fixed manufacturing costs

C)   distinguishes manufacturing costs from nonmanufacturing costs

D)   calculates gross margin Answer: B

Diff: 3

Terms: variable costing Objective: 2

AACSB:  Reflective thinking

20)   The gross-margin format of the income statement:

A)   distinguishes between manufacturing and nonmanufacturing costs

B)   distinguishes variable costs from fixed costs

C)   is used with variable costing

D)   calculates contribution margin Answer: A

Diff: 3

Terms: absorption costing Objective: 2

AACSB:  Reflective thinking

21)                    are subtracted from sales to calculate contribution margin.

A)   Variable manufacturing costs

B)   Variable selling and administrative costs

C)   Fixed manufacturing costs

D)   Both A and B are correct. Answer: D

Diff: 2

Terms: variable costing Objective: 2

AACSB:  Reflective thinking

22)                    are subtracted from sales to calculate gross margin.

A)   Variable manufacturing costs

B)   Variable selling and administrative costs

C)   Fixed manufacturing costs

D)   Both A and C are correct.

Answer: D Diff: 2

Terms: absorption costing Objective: 2

AACSB:  Reflective thinking

Answer the following questions using the information below:

Peggy's Pillows produces and sells a decorative pillow for $75.00 per unit. In the first month of operation, 2,000 units were produced and 1,750 units were sold. Actual fixed costs are the same as the amount budgeted for the month. Other information for the month includes:

Variable  manufacturing  costs          $20.00 per unit Variable  marketing  costs                                                    $  3.00 per unit

Fixed  manufacturing  costs               $  7.00 per unit Administrative expenses, all fixed $15.00 per unit Ending inventories:

Direct   materials                              -0-

WIP                                                   -0-

Finished   goods                                250 units

23)      What is cost of goods sold per unit using variable costing? A) $20

B) $23 C) $30 D) $45

Answer: A

Explanation: A) $20, only variable manufacturing costs are included when using variable costing. Diff: 1

Terms: variable costing Objective: 2

AACSB:  Analytical skills

24)      What is cost of goods sold using variable costing? A) $35,000

B) $40,000 C) $47,250 D) $54,000

Answer: A

Explanation: A) $20 × 1,750 units = $35,000 Diff: 2

Terms: variable costing Objective: 2

AACSB:  Analytical skills

25)      What is contribution margin using variable costing? A) $96,250

B) $91,000 C) $104,000 D) $110,000

Answer: B

Explanation: B) ($75 × 1,750) - [($20 + $3) × 1,750 units] = $91,000 Diff: 3

Terms: variable costing Objective: 2

AACSB:  Analytical skills

26)      What is operating income using variable costing? A) $52,500

B) $78,750 C) $65,750 D) $47,000

Answer: D

Explanation: D) Contribution margin of $91,000 - [($7 + $15) × 2,000 units] = $47,000 Diff: 3

Terms: variable costing Objective: 2

AACSB:  Analytical skills

27)   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 on operating income cannot be determined Answer: B

Diff: 2

Terms: absorption costing Objective: 2

AACSB:  Reflective thinking

28)      The difference between operating incomes under variable costing and absorption costing centers on how to account for:

A)   direct materials costs

B)   fixed manufacturing costs

C)   variable manufacturing costs

D)   Both B and C are correct. Answer: B

Diff: 2

Terms: variable costing, absorption costing Objective: 2

AACSB:  Reflective thinking

29)      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 from 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 Answer: B

Diff: 3

Terms:  variable costing, absorption costing

Objective: 2

AACSB:  Reflective thinking

30)      When comparing the operating incomes between absorption costing and variable costing, and ending finished inventory exceeds beginning finished inventory, it may be assumed that:

A)   sales decreased during the period

B)   variable cost per unit is more than fixed cost per unit

C)   there is a favorable production-volume variance

D)   absorption costing operating income exceeds variable costing operating income Answer: D

Diff: 3

Terms: variable costing, absorption costing Objective: 2

AACSB:  Reflective thinking

31)   Which of the following statements is FALSE?

A)   Absorption costing allocates fixed manufacturing overhead to actual units produced during the period.

B)   Nonmanufacturing 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 exceed sales units.

Answer: B Diff: 3

Terms: variable costing Objective: 2

AACSB:  Reflective thinking

32)   Heston Company has the following information for the current year:

Beginning fixed manufacturing overhead in inventory	$190,000
Fixed manufacturing overhead in production	750,000
Ending fixed manufacturing overhead in inventory	50,000
Beginning variable manufacturing overhead in inventory	$20,000
Variable manufacturing overhead in production	100,000
Ending variable manufacturing overhead in inventory	30,000

What is the difference between operating incomes under absorption costing and variable costing? A) $140,000

B) $100,000 C) $80,000 D) $10,000

Answer: A

Explanation: A) $190,000 - $50,000 = $140,000 Diff: 3

Terms: variable costing, absorption costing Objective: 2

AACSB:  Analytical skills