variable costing important concepts Flashcards
(25 cards)
What is variable costing?
Variable costing is an accounting method that only includes variable manufacturing costs in product costs.
True or False: Fixed manufacturing costs are included in product costs under variable costing.
False
Fill in the blank: Under variable costing, only __________ costs are treated as product costs.
variable
What costs are included in the calculation of contribution margin?
Variable costs only.
Multiple Choice: Which of the following is NOT included in variable costing? A) Direct materials B) Direct labor C) Fixed manufacturing overhead D) Variable manufacturing overhead
C) Fixed manufacturing overhead
What is the primary purpose of variable costing?
To provide better insights for decision-making and internal management.
True or False: Variable costing is required by GAAP for external reporting.
False
What is the impact of variable costing on inventory valuation?
Inventory is valued lower under variable costing compared to absorption costing.
Fill in the blank: Variable costing emphasizes __________ instead of total costs.
marginal costs
What is contribution margin?
The difference between sales revenue and variable costs.
Multiple Choice: Which costing method is typically used for internal management purposes? A) Absorption costing B) Variable costing C) Both A and B D) Neither A nor B
B) Variable costing
True or False: Under variable costing, all costs are treated as either fixed or variable.
True
What is the formula for calculating the contribution margin ratio?
Contribution Margin Ratio = Contribution Margin / Sales Revenue
Fill in the blank: Variable costing helps in making __________ decisions.
short-term
What is one advantage of variable costing?
It provides clearer insights into the impact of sales volume on profitability.
Multiple Choice: Which of the following is a limitation of variable costing? A) It does not comply with GAAP B) It provides detailed cost information C) It is useful for long-term pricing decisions D) None of the above
A) It does not comply with GAAP
True or False: Variable costing can lead to different profit figures compared to absorption costing.
True
What is the effect of increasing production on profit under variable costing?
Profit remains unaffected by changes in production levels since fixed costs are not included in product costs.
Fill in the blank: Under variable costing, fixed costs are treated as __________ expenses.
period
What is the main focus of variable costing analysis?
Analyzing how variable costs affect overall profitability.
Multiple Choice: Which statement is true regarding variable costing? A) It includes fixed costs in product costs B) It is used for external reporting C) It is useful for break-even analysis D) It ignores variable costs
C) It is useful for break-even analysis
What does the term ‘breakeven point’ refer to?
The level of sales at which total revenues equal total costs, resulting in zero profit.
True or False: Variable costing can assist in determining the breakeven point more effectively.
True
What is a disadvantage of using variable costing?
It may not provide a complete picture of overall profitability due to the exclusion of fixed costs.
