Question 1

If the number of units produced exceeds the number of units sold,then net operating income under absorption costing will:

Accepted Answer

Under absorption costing, fixed manufacturing costs are included in the cost of goods sold and are only expensed when the product is sold. Therefore, when the number of units produced exceeds the number of units sold, the fixed manufacturing costs related to the unsold units are deferred to a future period. This results in a higher net operating income compared to variable costing, where fixed manufacturing costs are expensed in the period incurred regardless of whether the products are sold or not. Thus, net operating income under absorption costing will be greater than net operating income under variable costing when the number of units produced exceeds the number of units sold.

Question 2

Which of the following are considered to be product costs under variable costing? 
I.Variable manufacturing overhead.
II)Fixed manufacturing overhead.
III)Selling and administrative expenses.

Accepted Answer

Under variable costing, only variable manufacturing costs, such as variable manufacturing overhead, are considered product costs. Fixed manufacturing overhead and selling and administrative expenses are treated as period costs.

Question 3

Under variable costing,costs that are treated as period costs include:

Accepted Answer

Under variable costing, all fixed costs, including fixed manufacturing and fixed selling and administrative costs, are treated as period costs.

Question 4

A common cost that should not be assigned to a particular product on a segmented income statement is:

Accepted Answer

The salary of the corporation president is a general administrative cost and should not be allocated to a particular product. Direct materials costs, product advertising costs, and product manager's salary are all costs that are specifically associated with producing and promoting a particular product and should be allocated to that product on a segmented income statement.

Question 5

Selling and administrative expenses are considered to be:

Accepted Answer

Selling and administrative expenses are not related to the production of goods and thus cannot be considered a product cost. Therefore, they are treated as a period cost under variable costing.

Question 6

Gangwer Corporation produces a single product and has the following cost structure:  The absorption costing unit product cost is:

Accepted Answer

The answer of Gangwer Corporation produces a single product and...

Question 7

Which of the following are considered to be product costs under absorption costing? 
I.Variable manufacturing overhead.
II)Fixed manufacturing overhead.
III)Selling and administrative expenses.

Accepted Answer

Absorption costing includes both variable and fixed manufacturing overhead as product costs, but it does not consider selling and administrative expenses as they are classified as period costs under this method. Therefore, the correct choices are I and II.

Question 8

Net operating income reported under absorption costing will exceed net operating income reported under variable costing for a given period if:

Accepted Answer

Under absorption costing, fixed manufacturing overhead costs are included in product costs and are only expensed when products are sold. Therefore, if production exceeds sales, more fixed manufacturing overhead costs will be assigned to inventory and carried over to the next period, resulting in a higher net operating income compared to variable costing where fixed manufacturing overhead is expensed immediately as period costs.

Question 9

In an income statement segmented by product line,a fixed expense that cannot be allocated among product lines on a cause-and-effect basis should be:

Accepted Answer

A fixed expense that cannot be allocated among product lines on a cause-and-effect basis is considered a common fixed expense and should not be allocated to any specific product line.

Question 10

Segment margin is sales minus:

Accepted Answer

Segment margin is the contribution to profit of a particular segment of a business, which is equal to the segment's sales revenue minus its variable expenses and traceable fixed expenses. Option A is incorrect as it only considers variable expenses, and option B is incorrect as it only considers traceable fixed expenses. Option C includes common fixed expenses, which are not subtracted from segment margin. Therefore, the correct answer is option D.

Question 11

Fixed manufacturing overhead is included in product costs under:

Accepted Answer

The answer of Fixed manufacturing overhead is included in product...

Question 12

Dull Corporation has been producing and selling electric razors for the past ten years.Shown below are the actual net operating incomes for the last three years of operations at Dull:  Dull Corporation's cost structure and selling price has not changed during its ten years of operations.Based on the information presented above,which of the following statements is true?

Accepted Answer

The answer of Dull Corporation has been producing and selling...

Question 13

Olds Inc. ,which produces a single product,has provided the following data for its most recent month of operations:  There were no beginning or ending inventories.The absorption costing unit product cost was:

Accepted Answer

The absorption costing unit product cost can be calculated as follows:
Direct Materials + Direct Labor + Variable Manufacturing Overhead + Fixed Manufacturing Overhead per unit
= ($30 + $25 + $7 + $68)/1
= $130
Therefore, the best choice is B.

Question 14

Would the following costs be classified as product or period costs under variable costing at a retail clothing store?

Accepted Answer

The answer of Would the following costs be classified as...

Question 15

Clayton Company produces a single product.Last year,the company's variable production costs totaled $8,000 and its fixed manufacturing overhead costs totaled $4,800.The company produced 4,000 units during the year and sold 3,600 units.Assuming no units in the beginning inventory:

Accepted Answer

Under absorption costing, fixed manufacturing overhead is included in the cost of ending inventory, while under variable costing, it is not. The fixed manufacturing overhead per unit is $4,800 / 4,000 units = $1.20. The ending inventory of 400 units will have $480 more in costs under absorption costing (400 units x $1.20) compared to variable costing.

Question 16

All other things being equal,if a division's traceable fixed expenses increase:

Accepted Answer

Traceable fixed expenses are expenses that can be directly traced to a particular division or segment. If these expenses increase, it will directly decrease the segment margin of that division. The contribution margin ratio and overall company profits may or may not be affected depending on other factors.

Question 17

A portion of the total fixed manufacturing overhead cost incurred during a period may:

Accepted Answer

Under absorption costing, a portion of the fixed manufacturing overhead cost incurred during the period may be excluded from the cost of goods sold calculation and instead be included as part of the inventory valuation. This portion is known as the fixed overhead absorption rate and is determined by dividing the total fixed overhead costs for the period by the total production units or direct labor hours in the period. The remaining portion of the fixed manufacturing overhead cost that is not included in the absorption rate is charged directly to expense as a period cost.

Question 18

Over an extended period of time in which the final ending inventories are zero,the accumulated net operating income figures reported under absorption costing will be:

Accepted Answer

When ending inventories are zero, all production costs are expensed, making net operating income the same under both absorption and variable costing.

Question 19

A company using lean production methods likely would show approximately the same net operating income under both absorption and variable costing because:

Accepted Answer

Lean production involves producing goods in a way that minimizes waste and efficiently meets customer demand. This means that production is typically geared towards sales, resulting in little or no ending inventory. Therefore, there would be no difference in net operating income calculation between absorption and variable costing, as ending inventory valuation would not be a factor.

Question 20

All other things equal,if a division's traceable fixed expenses decrease:

Accepted Answer

Traceable fixed expenses are expenses that are directly related to a particular segment/division. If these expenses decrease, it means that the division's costs have decreased, resulting in an increase in the division's segment margin. The overall company net operating income may or may not be affected by this change, depending on whether the decreased expenses are offset by other changes in the company's financial situation. The contribution margin and sales volume may also be affected, but these are not directly related to the decrease in traceable fixed expenses.

Quiz 5: Variable Costing and Segment Reporting: Tools for Management