Absorption vs. Variable Costing Flashcards
(18 cards)
The costing procedure that treats fixed manufacturing costs as period costs is
a. Full costing
b. Absorption costing
c. Variable costing
d. Conventional costing
c. Variable costing
Under variable costing, which of the following are costs that can be inventoried?
a. Variable selling and administrative expense
b. Variable manufacturing overhead
c. Fixed manufacturing overhead
d. Fixed selling and administrative expense
b. Variable manufacturing overhead
Another name for variable costing is
a. Full costing
b. Direct costing
c. Job order costing
d. Fixed costing
b. Direct costing
If a firm uses variable costing, fixed manufacturing overhead will be included
a. Only on the balance sheet
b. Only on the income statement
c. On both the balance sheet and income statement d. On neither the balance sheet nor income statement
b. Only on the income statement
Under variable costing
a. All product costs are variable
b. All period costs are variable
c. All product costs are fixed
d. Product costs are both fixed and variable
a. All product costs are variable
A basic tenet of variable costing is that period costs should be currently expensed. What is the rationale behind this procedure?
a. Period costs are uncontrollable and should not be charged to a specific product
b. Period costs are generally immaterial in amount and the cost of assigning the amounts to specific
products would outweigh the benefits
c. Allocation of period costs is arbitrary at best and could lead to erroneous decision by management
d. Because period costs will occur whether or not production occurs, it is improper to allocate these costs to production and defer a current cost of doing business
d. Because period costs will occur whether or not production occurs, it is improper to allocate these costs to production and defer a current cost of doing business
In an income statement prepared as an internal report using the variable costing method, fixed manufacturing overhead would
a. Not be used
b. Be used in the computation of operating income but not in the computation of the contribution margin
c. Be used in the computation of the contribution margin
d. Be treated the same as variable manufacturing overhead
b. Be used in the computation of operating income but not in the computation of the contribution margin
The FASB requires which of the following to be used in preparation of external financial statements?
a. Variable costing
b. Standard costing
c. Activity-based costing
d. Absorption costing
d. Absorption costing
Another name for absorption costing is
a. Full or conventional costing
b. Direct costing
c. Job order costing
d. Fixed costing
a. Full or conventional costing
If a firm uses absorption costing, fixed manufacturing overhead will be included
a. Only on the balance sheet
b. Only on the income statement
c. On both the balance sheet and income statement
d. On neither the balance sheet nor income statement
c. On both the balance sheet and income statement
If a firm produces more units than it sells, absorption costing, relative to variable costing, will result in
a. Higher income and assets
b. Higher income but lower assets
c. Lower income but higher assets
d. Lower income and assets
a. Higher income and assets
An ending inventory valuation on an absorption costing balance sheet would
a. Sometimes be less than the ending inventory valuation under variable costing
b. Always be less than the ending inventory valuation under variable costing
c. Always be the same as the ending inventory valuation under variable costing
d. Always be greater than or equal to the ending inventory valuation under variable costing
d. Always be greater than or equal to the ending inventory valuation under variable costing
Profit under absorption costing may differ from profit determined under variable costing. How is this difference calculated?
a. Change in the quantity of all units in inventory times the relevant fixed costs per unit
b. Change in the quantity of all units produced times the relevant fixed costs per unit
c. Change in the quantity of all units in inventory times the relevant variable cost per unit
d. Change in the quantity of all units produced times the relevant variable cost per unit
a. Change in the quantity of all units in inventory times the relevant fixed costs per unit
What factor, related to manufacturing costs, causes the difference in net earnings computed using absorption costing and net earnings computed using variable costing?
a. Absorption costing considers all costs in the determination of net earnings, whereas variable costing considers fixed costs to be period costs
b. Absorption costing allocates fixed overhead costs between cost of goods sold and inventories, and variable costing considers all fixed costs to be period costs
c. Absorption costing “inventories” all direct costs, but variable costing considers direct costs to be period costs
d. Absorption costing “inventories” all fixed costs for the period in ending finished goods inventory, but variable costing expenses all fixed costs
b. Absorption costing allocates fixed overhead costs between cost of goods sold and inventories, and variable costing considers all fixed costs to be period costs
The difference between the reported income under absorption and variable costing is attributable to the difference in the
a. Income statement formats
b. Treatment of fixed manufacturing overhead
c. Treatment of variable manufacturing overhead
d. Treatment of variable selling, general, and
administrative expenses
b. Treatment of fixed manufacturing overhead
Absorption costing differs from variable costing in all of the following except
a. Treatment of fixed manufacturing overhead
b. Treatment of variable production costs
c. Acceptability for external reporting
d. Arrangement of the income statement
b. Treatment of variable production costs
Under absorption costing, if sales remain constant from period 1 to period 2, the company will report a larger income in period 2 when
a. Period 2 production exceeds period 1 production
b. Period 1 production exceeds period 2 production
c. Variable production costs are larger in period 2 than period 1
d. Fixed production costs are larger in period 2 than period 1
a. Period 2 production exceeds period 1 production
When inventories increase from one period to the next and all other factors remain constant, income under direct costing:
a. Will be irrelevant for decision making
b. Will be smaller than under absorption costing
c. Leads to smaller federal income tax payments
d. Will be greater than under absorption costing
b. Will be smaller than under absorption costing
