Chapter 8

Under variable costing, which of the following costs are treated as period costs?

Only fixed manufacturing costs.

Both variable and fixed manufacturing costs.

All fixed costs

Only fixed selling and administrative costs.

During the year just ended, Roberts Company's operating income under absorption costing was $3,000 lower than its operating income under variable costing. The company sold 9,000 units during the year, and its variable costs were $9 per unit, of which $3 was variable selling expense. If production cost is $11 per unit under absorption costing every year, how many units did the company produce during the year?

8000

8400

9600

10000

Which of the following costs/expenses is included in product costs under both absorption costing and variable costing?

Supervisory salaries

Office equipment depreciation

Variable manufacturing costs

Variable selling expenses

Which of the following is normally included in product cost under the variable costing method?

Direct materials cost, direct labour cost, but NOT manufacturing overhead cost.

Direct materials cost, direct labour cost, and variable manufacturing overhead cost.

Prime cost but NOT conversion cost.

Prime cost and all conversion cost.

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

I only

I and II only

I and III only

I,II,III.

Operating income determined using absorption costing can be reconciled to operating income determined using variable costing by computing the difference between which of the following?

Fixed manufacturing overhead costs deferred in or released from inventories.

Discretionary costs included in the beginning and ending inventories.

Gross margin (absorption costing method) and contribution margin (variable costing method).

Sales as recorded under the variable costing method and sales as recorded under the absorption costing method.

During the most recent year, Evans Company had operating income of $90,000 using absorption costing and $84,000 using variable costing. The fixed manufacturing overhead application rate was $6 per unit. There were no beginning inventories. If 22,000 units were produced last year, what were the sales in units for last year?

15000

21000

23000

28000

What is the costing method that can be used most easily with break-even analysis and other cost-volume-profit techniques? Variable

Variable costing

Absorption costing

Process costing

Job-order costing

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

I, II, and III.

I and II only.

I and III only.

I only.

Last year, Silver Company's total variable production costs were $7,500, and its total fixed manufacturing overhead costs were $4,500. The company produced 3,000 units during the year and sold 2,400 units. There were no units in the beginning inventory. Which of the following statements is true?

Under variable costing, the average cost of the units in the ending inventory will be $4 each.

The operating income under absorption costing for the year will be $900 lower than the operating income under variable costing.

The ending inventory under variable costing will be $900 lower than the ending inventory under absorption costing.

Under absorption costing, the average cost of the units in ending inventory will be $2.50 each.

Last year, fixed manufacturing overhead costs were $30,000, variable production costs were $48,000, fixed selling and administration costs were $20,000, and variable selling administrative expenses were $9,600. There was no beginning inventory. During the year, 3,000 units were produced and 2,400 units were sold at a price of $40 per unit. Under variable costing, what would be the operating income (loss)?

6000

4000

(2000)

(4400)

Last year, Ben Company's operating income under absorption costing was $4,400 lower than its operating income under variable costing. The company sold 8,000 units during the year, and its variable costs were $8 per unit, of which $3 was variable selling expense. Fixed manufacturing overhead was $1 per unit in beginning inventory under absorption costing. Ending inventory was zero. How many units did the company produce during the year?

3600

7120

7450

12400

What factor is the cause of the difference between operating income computed using absorption costing and operating income computed using variable costing?

Absorption costing considers all manufacturing costs in the determination of operating income, whereas variable costing considers only prime costs.

Absorption costing allocates fixed manufacturing costs between cost of goods sold and inventories, and variable costing considers all fixed manufacturing costs as period costs.

Absorption costing includes all variable manufacturing costs in product costs, but variable costing considers variable manufacturing costs to be period costs.

Absorption costing includes all fixed manufacturing costs in product costs, but variable costing expenses all fixed manufacturing costs.

The term "gross margin" for a manufacturing company refers to the excess of sales over which of the following?

Cost of goods sold, excluding manufacturing overhead

All variable costs, including variable selling and administrative expenses.

Cost of goods sold, including fixed manufacturing overhead.

Variable costs, excluding variable selling and administrative expenses.

Chapter 8

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