Question 1

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 2

Variable costing is also known as direct costing.

Accepted Answer

Variable costing and direct costing are the same thing. This method of costing only includes the variable costs of production in the cost of goods sold and treats fixed costs as period expenses.

Question 3

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

Accepted Answer

Absorption costing and variable costing are two different methods for determining the cost of goods sold.

Question 4

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

Question 5

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, which is absorbed into the product cost.

Question 6

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 7

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

Accepted Answer

The absorption costing concept includes direct and indirect costs of production, such as salaries of factory personnel, as part of the cost of products manufactured. The factory superintendent's salary is considered an indirect cost of production and therefore included in the cost of products manufactured.

Question 8

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

Accepted Answer

On a variable costing income statement, fixed costs are deducted separately from the contribution margin as they are considered period expenses rather than product costs. This allows for a clearer understanding of the impact of changes in production levels on profitability.

Question 9

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 10

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

Accepted Answer

This is correct. On a variable costing income statement, variable selling and administrative expenses are deducted from manufacturing margin to yield contribution margin.

Question 11

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 calculate gross profit. Therefore, the statement is true.

Question 12

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

Accepted Answer

Under the absorption costing concept, all manufacturing costs, including direct materials, direct labor, and overhead costs, are included in the cost of products manufactured. Since electricity purchased to operate factory machinery is an overhead cost, it is included in the cost of products manufactured under absorption costing.

Question 13

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 14

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

Accepted Answer

The absorption costing income statement includes all manufacturing costs, both variable and fixed, as part of the cost of goods sold. Therefore, it does not distinguish between variable and fixed costs.

Question 15

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

Accepted Answer

This is true according to the principles of variable costing, where only variable costs are considered when determining the cost of goods sold. Subtracting the variable cost of goods sold from sales gives the manufacturing margin, which represents the contribution of manufacturing to covering fixed costs and generating profit.

Question 16

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 only considers the direct costs of production, such as materials, labor, and variable overhead, which are dependent on the volume of production. Fixed costs, such as rent and management salaries, are not included in the cost of products manufactured under variable costing.

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, fixed costs are considered period expenses and are not included in the cost of goods manufactured. Only variable costs, such as direct materials, direct labor, and variable overhead, are included in the cost of goods manufactured under the variable costing method.

Question 18

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 actually the same concept, both referring to a method where only variable manufacturing costs are charged to product costs. The two alternate costing concepts are variable costing and absorption costing.

Question 19

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 direct materials, direct labor, and variable manufacturing overhead in the cost of products. Non-manufacturing costs, such as taxes on the factory superintendent's salary, are treated as period expenses and are not included in the cost of products.

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

Property taxes on a factory building are considered a fixed manufacturing overhead cost and are included in the cost of products manufactured under the absorption costing concept.

Quiz 20: Variable Costing for Management Analysis