Question 1

Which of the following costs at a manufacturing company would be treated as a product cost under both absorption costing and variable costing? 
A)Option A
B)Option B
C)Option C
D)Option D

Accepted Answer

The answer of Which of the following costs at a...

Question 2

Under absorption costing, product costs include: 
A)Option A
B)Option B
C)Option C
D)Option D

Accepted Answer

Under absorption costing, product costs include direct materials, direct labor, and both variable and fixed overhead costs. Option A lists all of these cost components, whereas the other options do not include all of them.

Question 3

Under absorption costing, fixed manufacturing overhead costs:
A)are deferred in inventory when production exceeds sales.
B)are always treated as period costs.
C)are released from inventory when production exceeds sales.
D)are ignored.

Accepted Answer

Under absorption costing, fixed manufacturing overhead costs are included in the cost of inventory. When production exceeds sales, these costs are deferred in inventory and carried forward until the inventory is eventually sold. This is in contrast to variable costing, where fixed manufacturing overhead costs are always treated as period costs and are expensed in the period they are incurred.

Question 4

When production exceeds sales and the company uses the LIFO inventory flow assumption, the net operating income reported under absorption costing generally will be:
A)less than net operating income reported under variable costing.
B)greater than net operating income reported under variable costing.
C)equal to net operating income reported under variable costing.
D)higher or lower because no generalization can be made.

Accepted Answer

When production exceeds sales and LIFO method is used for inventory costing, the cost of goods sold under absorption costing will be higher than under variable costing. As a result, the net operating income reported under absorption costing will be greater than net operating income reported under variable costing.

Question 5

Under variable costing, which of the following is not expensed in its entirety in the period in which it is incurred?
A)fixed manufacturing overhead cost
B)fixed selling and administrative expense
C)variable selling and administrative expense
D)variable manufacturing overhead cost

Accepted Answer

The answer of Under variable costing, which of the following...

Question 6

The term gross margin is used in reports prepared using:
A)both absorption costing and variable costing.
B)absorption costing but not variable costing.
C)variable costing but not absorption costing.
D)neither variable costing nor absorption costing.

Accepted Answer

The answer of The term gross margin is used in...

Question 7

If a cost must be arbitrarily allocated in order to be assigned to a particular segment, then that cost should not be considered a common cost.

Accepted Answer

The answer of If a cost must be arbitrarily allocated...

Question 8

A common fixed cost is a fixed cost that is incurred because of the existence of a particular business segment and that would be eliminated if the segment were eliminated.

Accepted Answer

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

Question 9

When using segmented income statements, the dollar sales for a company to break even equals the sum of the traceable fixed expenses and the common fixed expenses divided by the overall CM ratio.

Accepted Answer

This is the correct formula for calculating the dollar sales needed to break even using segmented income statements. The sum of the traceable fixed expenses and common fixed expenses is divided by the contribution margin ratio, which represents the amount of each dollar of sales that is available to cover fixed expenses and contribute to profit.

Question 10

If a company operates at the break even point for each of its segments, it will lose money overall if common fixed expenses exist.

Accepted Answer

Operating at the break even point means that the company is generating just enough revenue to cover its variable and direct costs for each segment. However, if there are common fixed expenses (such as rent, utilities, salaries of top management), these expenses cannot be allocated to a specific segment and must be paid regardless of whether the company is making a profit or not. As a result, if a company operates at the break even point for each of its segments, it will not generate enough profit to cover the common fixed expenses and will therefore lose money overall.

Question 11

George Corporation has no beginning inventory and manufactures a single product.If the number of units produced exceeds the number of units sold, then net operating income under the absorption method for the year will:
A)be equal to the net operating income under variable costing.
B)be greater than the net operating income under variable costing.
C)be equal to the net operating income under variable costing plus total fixed manufacturing costs.
D)be equal to the net operating income under variable costing less total fixed manufacturing costs.

Accepted Answer

Under absorption costing, fixed manufacturing costs are included in the cost of each unit produced and are only expensed in the period in which the unit is sold. If the number of units produced exceeds the number of units sold, then a portion of the fixed manufacturing costs will be deferred to the following period when the unsold units are sold. This results in a higher net operating income under absorption costing compared to variable costing because variable costing only includes variable costs in the cost of each unit produced and expenses fixed manufacturing costs in the period in which they are incurred. Therefore, net operating income under absorption costing will be greater than net operating income under variable costing in this scenario.

Question 12

Common fixed expenses should be allocated to business segments when performing break-even calculations and making decisions.

Accepted Answer

The answer of Common fixed expenses should be allocated to...

Question 13

If a cost is a common cost of the segments on a segmented income statement, the cost should:
A)be allocated to the segments on the basis of segment sales.
B)not be allocated to the segments.
C)excluded from the income statement.
D)treated as a product cost rather than as a period cost.

Accepted Answer

Common costs are not directly traceable to a particular segment and should not be allocated to the segments as it could distort the true profitability of each segment. Instead, common costs should be included in the overall analysis of the company's financial performance but not assigned to individual segments.

Question 14

Routit Corporation had the following sales and production for the past four years:  Selling price per unit, variable cost per unit, and total fixed cost are the same each year.There were no beginning inventories in Year 1.Which of the following statements is correct?
A)Under variable costing, net operating income for Year 3 and Year 4 would be the same.
B)Under variable costing, net operating income for Year 2 and Year 3 would be the same.
C)Variable costing net income would exceed absorption costing net income in Year 1.
D)Absorption costing net income would exceed variable costing net income in Year 4.

Accepted Answer

The answer of Routit Corporation had the following sales and...

Question 15

Routsong Corporation had the following sales and production for the past four years:  Selling price per unit, variable cost per unit, and total fixed cost are the same each year.There were no beginning inventories in Year 1.Which of the following statements is NOT correct?
A)Under variable costing, net operating income for Year 1 and Year 2 would be the same.
B)Because of the changes in production levels, under variable costing the unit product cost will change each year.
C)The total net operating income for all four years combined would be the same under variable and absorption costing.
D)Under absorption costing, net operating income in Year 4 would be less than the net operating income in Year 2.

Accepted Answer

The answer of Routsong Corporation had the following sales and...

Question 16

When sales are constant, but the number of units produced fluctuates, net operating income determined by the absorption costing method will:
A)tend to fluctuate in the same direction as fluctuations in the number of units produced.
B)tend to remain constant.
C)tend to fluctuate in the opposite direction as fluctuations in the number of units produced.
D)fluctuate without any relation to the number of units produced.

Accepted Answer

When sales are constant, changes in the number of units produced will affect the cost per unit due to fixed manufacturing overhead costs being spread across a different number of units. As a result, net operating income determined by the absorption costing method will tend to fluctuate in the same direction as fluctuations in the number of units produced.

Question 17

Under variable costing, fixed manufacturing overhead is:
A)carried in a liability account.
B)carried in an asset account.
C)ignored.
D)expensed as a period cost.

Accepted Answer

Under variable costing, fixed manufacturing overhead is expensed as a period cost, rather than being included in the cost of goods sold. This is because fixed manufacturing overhead is seen as a cost of operating the production facilities, rather than a cost that is directly tied to the production of each unit of product.

Question 18

Segment margin is a better measure of the long-run profitability of a segment than contribution margin.

Accepted Answer

Segment margin takes into account all direct and indirect expenses related to a segment, including fixed costs, whereas contribution margin only considers variable costs. Therefore, segment margin provides a more accurate representation of a segment's profitability over the long term.

Question 19

When using segmented income statements, the dollar sales for a segment to break even equals the common fixed expenses of the segment divided by the segment CM ratio.

Accepted Answer

The answer of When using segmented income statements, the dollar...

Question 20

The principal difference between variable costing and absorption costing centers on:
A)whether variable manufacturing costs should be included in product costs.
B)whether fixed manufacturing costs should be included in product costs.
C)whether fixed manufacturing costs and fixed selling and administrative costs should be included in product costs.
D)whether selling and administrative costs should be included in product costs.

Accepted Answer

The main difference between variable costing and absorption costing is the treatment of fixed manufacturing costs. In variable costing, only variable manufacturing costs are included in product costs, while fixed manufacturing costs are treated as period costs and are expensed in the period they are incurred. In contrast, absorption costing includes all manufacturing costs (both variable and fixed) in product costs. This leads to differences in inventory valuation and cost of goods sold calculation between the two costing methods.

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

Which of the following costs at a manufacturing company would be treated as a product cost under both absorption costing and variable costing?

Under absorption costing, product costs include:

Under absorption costing, fixed manufacturing overhead costs:

When production exceeds sales and the company uses the LIFO inventory flow assumption, the net operating income reported under absorption costing generally will be:

Under variable costing, which of the following is not expensed in its entirety in the period in which it is incurred?

The term gross margin is used in reports prepared using:

If a cost must be arbitrarily allocated in order to be assigned to a particular segment, then that cost should not be considered a common cost.

A common fixed cost is a fixed cost that is incurred because of the existence of a particular business segment and that would be eliminated if the segment were eliminated.

When using segmented income statements, the dollar sales for a company to break even equals the sum of the traceable fixed expenses and the common fixed expenses divided by the overall CM ratio.

If a company operates at the break even point for each of its segments, it will lose money overall if common fixed expenses exist.

George Corporation has no beginning inventory and manufactures a single product.If the number of units produced exceeds the number of units sold, then net operating income under the absorption method for the year will:

Common fixed expenses should be allocated to business segments when performing break-even calculations and making decisions.

If a cost is a common cost of the segments on a segmented income statement, the cost should:

Routit Corporation had the following sales and production for the past four years: Selling price per unit, variable cost per unit, and total fixed cost are the same each year.There were no beginning inventories in Year 1.Which of the following statements is correct?

Routsong Corporation had the following sales and production for the past four years: Selling price per unit, variable cost per unit, and total fixed cost are the same each year.There were no beginning inventories in Year 1.Which of the following statements is NOT correct?

When sales are constant, but the number of units produced fluctuates, net operating income determined by the absorption costing method will:

Under variable costing, fixed manufacturing overhead is:

Segment margin is a better measure of the long-run profitability of a segment than contribution margin.

When using segmented income statements, the dollar sales for a segment to break even equals the common fixed expenses of the segment divided by the segment CM ratio.

The principal difference between variable costing and absorption costing centers on: