Question 1

On the variable costing income statement, deduction of the variable cost of goods sold from sales yields gross profit.

Accepted Answer

On the variable costing income statement, deduction of the variable cost of goods sold from sales yields contribution margin, not gross profit. Gross profit is a term typically associated with absorption costing.

Question 2

On the variable costing income statement, variable selling and administrative expenses are deducted from manufacturing margin to yield contribution margin.

Accepted Answer

Variable selling and administrative expenses are subtracted from net sales to get the variable cost of goods sold, which is then subtracted from net sales to obtain the manufacturing margin. Variable selling and administrative expenses are then subtracted from the manufacturing margin to obtain contribution margin.

Question 3

Under absorption costing, the cost of finished goods includes only direct materials, direct labor, and variable factory overhead.

Accepted Answer

Under absorption costing, the cost of finished goods includes direct materials, direct labor, variable factory overhead, and fixed factory overhead.

Question 4

The absorption costing income statement does not distinguish between variable and fixed costs.

Accepted Answer

The absorption costing method includes all manufacturing costs, whether fixed or variable, in the product cost and therefore does not differentiate between them in the income statement.

Question 5

Fixed factory overhead costs are included as part of the cost of products manufactured under the absorption costing concept.

Accepted Answer

Fixed factory overhead costs are included as part of the cost of products manufactured under the absorption costing concept, along with direct materials, direct labor, and variable factory overhead costs.

Question 6

Variable costing is also known as direct costing.

Accepted Answer

Variable costing and direct costing are interchangeable terms to describe the same accounting method that only includes variable costs as part of the cost of goods sold.

Question 7

In the absorption costing income statement, deduction of the cost of goods sold from sales yields net profit.

Accepted Answer

In the absorption costing income statement, deduction of the cost of goods sold from sales yields gross profit, not net profit. Net profit is calculated after deducting operating expenses from gross profit.

Question 8

In the absorption costing income statement, deduction of the cost of goods sold from sales yields gross profit.

Accepted Answer

In the absorption costing income statement, cost of goods sold is deducted from sales to arrive at gross profit.

Question 9

On the variable costing income statement, all of the fixed costs are deducted from the contribution margin.

Accepted Answer

In variable costing, all fixed costs (both manufacturing and non-manufacturing) are deducted from the contribution margin to determine net income, as opposed to being allocated among the units produced.

Question 10

The factory superintendent's salary would be included as part of the cost of products manufactured under the absorption costing concept.

Accepted Answer

Absorption costing includes all production costs, including direct materials, direct labor, and overhead costs such as the factory superintendent's salary, as part of the cost of products manufactured.

Question 11

In determining cost of goods sold, two alternate costing concepts can be used: direct costing and variable costing.

Accepted Answer

Direct costing and variable costing are not two alternate concepts for determining the cost of goods sold; rather, direct costing is another term for variable costing, both of which involve assigning only variable manufacturing costs to products. The alternative to variable (or direct) costing is absorption costing, which includes both variable and fixed manufacturing costs in the cost of goods sold.

Question 12

In variable costing, the cost of products manufactured is composed of only those manufacturing costs that increase or decrease as the volume of production rises or falls.

Accepted Answer

Variable costing includes only variable costs in the cost of products manufactured. Fixed costs are treated as period expenses and are not included in product costs. Variable costs increase or decrease with changes in production volume. Therefore, only those manufacturing costs that vary with production volume are included in the cost of products manufactured under variable costing.

Question 13

In the absorption costing income statement, deduction of the cost of goods sold from sales yields contribution margin.

Accepted Answer

In the absorption costing income statement, the deduction of the cost of goods sold from sales yields gross margin, not contribution margin. Contribution margin is a term used in variable costing, representing sales revenue minus variable costs.

Question 14

The taxes on the factory superintendent's salary would be included as part of the cost of products manufactured under the variable costing concept.

Accepted Answer

The variable costing concept only includes variable manufacturing costs in the cost of products manufactured, not fixed costs such as salaries. Taxes on the factory superintendent's salary would be considered a fixed cost and therefore would not be included in the cost of products manufactured under variable costing.

Question 15

Electricity purchased to operate factory machinery would be included as part of the cost of products manufactured under the absorption costing concept.

Accepted Answer

In absorption costing, all direct and indirect manufacturing costs, including electricity used to operate factory machinery, are included as part of the cost of products manufactured.

Question 16

Under absorption costing, the cost of finished goods includes direct materials, direct labor, and all factory overhead.

Accepted Answer

Under absorption costing, the cost of finished goods includes direct materials, direct labor, and all factory overhead.

Question 17

In variable costing, fixed costs do not become part of the cost of goods manufactured, but are considered an expense of the period.

Accepted Answer

In variable costing, only direct materials, direct labor, and variable manufacturing overhead are included in the cost of goods manufactured. Fixed manufacturing overhead is considered a period expense and is not included in the cost of goods manufactured.

Question 18

On the variable costing income statement, deduction of the variable cost of goods sold from sales yields manufacturing margin.

Accepted Answer

This is true. On a variable costing income statement, the cost of goods sold includes only the variable production costs (such as direct materials, direct labor, and variable overhead), while fixed production costs are treated as period expenses. Deducting the variable cost of goods sold from sales yields the manufacturing margin, which represents the contribution of sales towards covering the fixed costs and generating a profit.

Question 19

In determining cost of goods sold, two alternate costing concepts can be used: absorption costing and variable costing.

Accepted Answer

This statement is true. Absorption costing and variable costing are two common methods used to determine the cost of goods sold. Absorption costing includes all manufacturing costs, while variable costing only includes direct costs of production. These different approaches can lead to different results and have varying implications for financial analysis and decision-making.

Question 20

Property taxes on a factory building would be included as part of the cost of products manufactured under the absorption costing concept.

Accepted Answer

Absorption costing includes all relevant manufacturing costs, including indirect costs such as property taxes, as part of the cost of a product.

Quiz 6: Variable Costing for Management Analysis

On the variable costing income statement, deduction of the variable cost of goods sold from sales yields gross profit.

On the variable costing income statement, variable selling and administrative expenses are deducted from manufacturing margin to yield contribution margin.

Under absorption costing, the cost of finished goods includes only direct materials, direct labor, and variable factory overhead.

The absorption costing income statement does not distinguish between variable and fixed costs.

Fixed factory overhead costs are included as part of the cost of products manufactured under the absorption costing concept.

Variable costing is also known as direct costing.

In the absorption costing income statement, deduction of the cost of goods sold from sales yields net profit.

In the absorption costing income statement, deduction of the cost of goods sold from sales yields gross profit.

On the variable costing income statement, all of the fixed costs are deducted from the contribution margin.

The factory superintendent's salary would be included as part of the cost of products manufactured under the absorption costing concept.

In determining cost of goods sold, two alternate costing concepts can be used: direct costing and variable costing.

In variable costing, the cost of products manufactured is composed of only those manufacturing costs that increase or decrease as the volume of production rises or falls.

In the absorption costing income statement, deduction of the cost of goods sold from sales yields contribution margin.

The taxes on the factory superintendent's salary would be included as part of the cost of products manufactured under the variable costing concept.

Electricity purchased to operate factory machinery would be included as part of the cost of products manufactured under the absorption costing concept.

Under absorption costing, the cost of finished goods includes direct materials, direct labor, and all factory overhead.

In variable costing, fixed costs do not become part of the cost of goods manufactured, but are considered an expense of the period.

On the variable costing income statement, deduction of the variable cost of goods sold from sales yields manufacturing margin.

In determining cost of goods sold, two alternate costing concepts can be used: absorption costing and variable costing.

Property taxes on a factory building would be included as part of the cost of products manufactured under the absorption costing concept.