Question 1

When variable costing is used, and if selling prices exceed variable expenses and if the unit contribution margins, the sales mix, and fixed costs remain the same, profits move in the same direction as sales.

Accepted Answer

This statement is true because in variable costing, profits are directly affected by changes in sales volume, as fixed costs are already accounted for separately. If selling prices exceed variable expenses and the unit contribution margins, sales mix, and fixed costs remain the same, profits will increase proportionally with sales.

Question 2

Because absorption costing emphasizes costs by behavior, it works well with cost-volume-profit analysis.

Accepted Answer

False

Question 3

Assuming the LIFO inventory flow assumption, if production is less than sales for the period, absorption costing net operating income will generally be greater than variable costing net operating income.

Accepted Answer

Under LIFO inventory flow assumption, if production is less than sales for the period, there will be a decrease in ending inventory, which will result in a higher cost of goods sold under absorption costing compared to variable costing. This, in turn, will result in a lower net operating income under absorption costing. Therefore, variable costing net operating income will generally be greater than absorption costing net operating income.

Question 4

Under absorption costing, the profit for a period is affected by a change in the number of units of finished goods in inventory.

Accepted Answer

Absorption costing includes fixed manufacturing overhead as a cost of production, which is included in the cost of goods sold when units are sold and in the value of inventory when units are not sold. Therefore, a change in the number of units in inventory will affect the cost of goods sold and the profit for the period.

Question 5

Under absorption costing, fixed manufacturing overhead cost is not included in product cost.

Accepted Answer

Under absorption costing, fixed manufacturing overhead cost is included in product cost.

Question 6

Direct materials is considered to be a product cost under variable costing but not absorption costing.

Accepted Answer

The answer of Direct materials is considered to be a...

Question 7

When the number of units in work in process and finished goods inventories decrease, absorption costing net operating income will typically be greater than variable costing net operating income.

Accepted Answer

When the number of units in work in process and finished goods inventories decrease, variable costing net operating income will typically be greater than absorption costing net operating income. This is because under variable costing, only variable manufacturing costs are included in product costs and fixed manufacturing costs are treated as period expenses. Therefore, when inventory levels decrease, it results in lower fixed manufacturing costs being expensed in the current period, which increases net operating income. However, under absorption costing, fixed manufacturing costs are included in product costs and are not expensed until the products are sold. Therefore, when inventory levels decrease, it results in lower fixed manufacturing costs being allocated to products in inventory, which decreases net operating income.

Question 8

A common fixed cost is a fixed cost that supports more than one business segment and is traceable in whole or in part to at least one of the business segments.

Accepted Answer

The answer of A common fixed cost is a fixed...

Question 9

When viewed over the long term, cumulative net operating income will be the same for variable and absorption costing if ending inventories exceed beginning inventories.

Accepted Answer

The statement is false. Cumulative net operating income may be different under variable and absorption costing, even if ending inventories exceed beginning inventories over the long term. This is because absorption costing includes fixed manufacturing overhead as part of the cost of inventory, while variable costing only includes variable manufacturing costs. Therefore, changes in inventory levels can affect net operating income differently depending on the type of costing method used.

Question 10

Assuming the LIFO inventory flow assumption, if production equals sales for the period, absorption costing and variable costing will produce the same net operating income.

Accepted Answer

The answer of Assuming the LIFO inventory flow assumption, if...

Question 11

Net operating income is affected by the number of units produced when absorption costing is used.

Accepted Answer

Absorption costing considers fixed overhead costs in the cost of goods sold, and these costs are allocated among the units produced. As a result, increasing the number of units produced will increase the amount of fixed overhead costs allocated to each unit, which will affect the net operating income.

Question 12

Common fixed costs should not be charged to the individual segments when preparing a segmented income statement.

Accepted Answer

Common fixed costs are not attributed to any particular segment and therefore should not be charged to individual segments when preparing a segmented income statement.

Question 13

Under variable costing, variable production costs are not treated as product costs.

Accepted Answer

The answer of Under variable costing, variable production costs are...

Question 14

Under variable costing, product cost does not contain any fixed manufacturing overhead cost.

Accepted Answer

Variable costing considers only the variable manufacturing costs as product costs and does not include fixed manufacturing overhead costs. These costs are instead treated as period expenses and are expensed in the period in which they are incurred.

Question 15

Under absorption costing, it is possible to defer a portion of the fixed manufacturing overhead costs of the current period to future periods through the inventory account.

Accepted Answer

Under absorption costing, fixed manufacturing overhead costs are included in the cost of inventory. If units are produced but not sold, the fixed overhead costs associated with those units are deferred to future periods when the inventory is sold.

Question 16

Under conventional absorption costing, the fixed costs associated with idle production capacity are not included as part of the product cost.

Accepted Answer

The answer of Under conventional absorption costing, the fixed costs...

Question 17

The costs assigned to units in inventory are typically lower under variable costing than under absorption costing.

Accepted Answer

Under variable costing, only variable manufacturing costs are included in the cost of inventory, while fixed manufacturing costs are expensed in the period they are incurred. This can result in lower costs assigned to units in inventory compared to absorption costing, where fixed manufacturing costs are assigned to units in inventory along with variable costs.

Question 18

Under variable costing, product costs consist of direct materials, direct labor, and variable manufacturing overhead.

Accepted Answer

This is correct. Under variable costing, product costs only include direct materials, direct labor, and variable manufacturing overhead, while fixed manufacturing overhead is expensed as period costs.

Question 19

Under absorption costing, fixed manufacturing overhead is treated as a product cost.

Accepted Answer

Under absorption costing, fixed manufacturing overhead is allocated to each unit of product and is included in the cost of goods sold. This is in contrast to variable costing, where fixed overhead is treated as a period cost and is expensed in the period incurred.

Question 20

Under variable costing, fixed manufacturing overhead cost is not treated as a product cost.

Accepted Answer

Under variable costing, fixed manufacturing overhead cost is considered a period cost and is not included in the cost of goods sold.

Quiz 4: Variable Costing and Segment Reporting: Tools for Management