Question 1

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 2

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

Accepted Answer

Common fixed costs cannot be attributed to individual segments as they are incurred for the company as a whole and not specific to any particular segment. Therefore, they should not be charged to the individual segments when preparing a segmented income statement.

Question 3

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

Accepted Answer

Variable costing only includes variable manufacturing overhead as a product cost, not fixed manufacturing overhead.

Question 4

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 answer of When viewed over the long term,cumulative net...

Question 5

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

Accepted Answer

The answer of Under variable costing,variable production costs are not...

Question 6

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 is because under variable costing, fixed costs are treated as period expenses and are not assigned to products. Therefore, as long as the unit contribution margins remain the same, any increase in sales volume will lead to an increase in profits.

Question 7

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 associated...

Question 8

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

Accepted Answer

The answer of Because absorption costing emphasizes costs by behavior,it...

Question 9

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

Accepted Answer

This is because variable costing only takes into account the variable production costs (direct materials, direct labor, and variable overhead) as product costs, while fixed manufacturing overhead costs are treated as period costs and expensed in the period incurred. As a result, the cost per unit will be lower under variable costing since fixed overhead is not allocated to units in inventory. Under absorption costing, however, all production costs (both variable and fixed) are included in the cost of goods sold, resulting in a higher cost per unit.

Question 10

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

Accepted Answer

Under variable costing, only variable manufacturing costs are treated as product costs while fixed manufacturing overhead costs are treated as period costs and are expensed in the period incurred.

Question 11

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

Accepted Answer

With absorption costing, net operating income is affected by the number of units produced as fixed manufacturing overhead costs are allocated to each unit produced. The more units produced, the more overhead costs are allocated, which can impact net operating income.

Question 12

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

Accepted Answer

Under variable costing, only variable manufacturing costs are included in the product cost, while fixed manufacturing overhead costs are treated as period expenses and are not allocated to the product cost.

Question 13

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

If production is less than sales for the period, there will be less inventory to allocate fixed manufacturing costs to under absorption costing. This will result in a higher cost of goods sold and a lower net operating income compared to variable costing.

Question 14

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, absorption costing and variable costing net operating income will be the same.

Question 15

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 16

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 17

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

Accepted Answer

Under absorption costing, fixed manufacturing overhead is allocated to products and included in their total cost.

Question 18

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. Thus, if there is an increase in inventory levels, a portion of fixed overhead costs will be deferred to future periods through the inventory account. This is not possible under variable costing, where fixed overhead costs are expensed as period costs.

Question 19

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

Under absorption costing, the profit is affected by the number of units of finished goods in inventory because it includes fixed manufacturing overhead costs in the cost of each unit produced. As a result, if there is an increase or decrease in the number of units in inventory, it will impact the amount of fixed overhead costs allocated to the cost of goods sold and the ending inventory, thereby affecting the reported profit for the period.

Question 20

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 production...

Quiz 7: Variable Costing and Segment Reporting: Tools for Management