Absorption and Variable Costing quiz Cost Accounting Quiz On May 4, 2024 Share /9 123456789 Absorption and Variable Costing 10 questions in 10 minutes Answers at the end of the exam Pass Score 70% The questions change when you repeat the exam enter full-screen mode by pressing the icon located in the top- right comer of the exam 1 / 9 The contribution margin is the excess of revenues over Manufacturing cost Direct cost All variable costs Cost of goods sold Contribution margin is the excess of revenues over all variable costs (including both manufacturing and nonmanufacturing variable costs) that vary with an output-related cost driver. The contribution margin equals the revenues that contribute toward covering the fixed costs and providing a net income 2 / 9 Which method of inventory costing treats direct manufacturing costs and manufacturing overhead costs, both variable and fixed, as inventoriable costs? Absorption costing Direct costing Variable costing Conversion costing Absorption (full) costing considers all manufacturing costs to be inventoriable as product costs. These costs include variable and fixed manufacturing costs, whether direct or indirect. The alternative to absorption is known as variable (direct) costing 3 / 9 Manchester Airlines is in the process of preparing a contribution margin income statement that will allow a detailed look at its variable costs and profitability of operations. Which one of the following cost combinations should be used to evaluate the variable cost per flight of the company‟s Boston Las Vegas flights? Communication system operation, food service, and ramp personnel Airplane depreciation, baggage handling, and airline marketing Flight crew salary, fuel, and engine maintenance Fuel, food service, and airport landing fees Fuel, food service, and airport landing fees are all variable and traceable to individual flights 4 / 9 Which one of the following is the best reason for using variable costing? Variable costing is acceptable for income tax reporting purposes Variable costing usually results in higher operating income than if a company uses absorption costing Fixed factory overhead is more closely related to the capacity to produce than to the production of specific units All costs are variable in the long term Fixed factory overhead is more closely related to the capacity to produce than to the production of specific units. Variable costing thus more accurately depicts the variations in cost resulting from changes in the level of output 5 / 9 Which of the following statements is true for a firm that uses variable costing ? An idle facility variation is calculated The cost of a unit of product changes because of changes in number of units manufactured Profits fluctuate with sales Product costs include variable administrative costs In a variable costing system, only the variable costs are recorded as product costs. All fixed costs are expensed in the period incurred. Because changes in the relationship between production levels and sales levels do not cause changes in the amount of fixed manufacturing cost expensed, profits more directly follow the trends in sales 6 / 9 Z Company uses direct (variable) costing for internal reporting and absorption costing for the external financial statements. A review of the firm‟s internal and external disclosures will likely find A higher inventoriable unit cost reported to management than to the shareholders Internal income figures that vary closely with sales and external income figures that are influenced by both units sold and productive output A difference in the treatment of fixed selling and administrative costs A contribution margin rather than gross margin in the reports released to shareholders Under variable costing, only costs that vary with the level of production are treated as product costs. Thus, internal income figures will vary closely with sales. Under absorption costing, all production costs (both variable and fixed) are treated as product costs. Thus, external income figures are influenced by both units sold and productive output 7 / 9 Huntington Corporation pays bonuses to its managers based on operating income, as calculated under variable costing. It is now 2 months before year end, and earnings have been depressed for some time. Which one of the following actions should Wanda Richards, production manager, definitely implement if she desires to maximize her bonus for this year ? Step up production so that more manufacturing costs are deferred into inventory Postpone $1.8 million of discretionary equipment maintenance until next year Cut $2.3 million of advertising and marketing costs Implement, with the aid of the controller, an activity-based costing and activity-based management system Because the production manager wishes to maximize her bonus for the coming year, the action she must take will necessarily have most of its effect in the short run. The action she should take to achieve this goal is to defer costs under her control until the following period 8 / 9 When a firm prepares financial reports by using absorption costing : Profits will always increase with increases in sales Profits will always decrease with decreases in sales Decreased output and constant sales result in increased profits Profits may decrease with increased sales even if there is no change in selling prices and costs In an absorption costing system, fixed overhead costs are included in inventory. When sales exceed production, more overhead is expensed under absorption costing due to fixed overhead carried over from the prior inventory. If sales increase over production, more than one period‟s overhead is recognized as expense. Accordingly, if the increase in overhead expensed is greater than the contribution margin of the increased units sold, profit may be lower with an increased level of sales 9 / 9 Which one of the following is an advantage of using variable costing ? Variable costing makes cost-volume relationships more easily apparent Variable costing complies with generally accepted accounting principles Variable costing is more relevant to long-run pricing strategies Variable costing complies with the U.S. Internal Revenue Code Under variable costing, only the variable costs of manufacturing attach to the units of output; fixed costs are expensed in the period in which they are incurred. Thus, the variations in cost directly attributable to changes in production level are immediately apparent under variable costing. Your score is LinkedIn Facebook Twitter VKontakte 0% Send feedback Absorption and Variable Costing quizabsorption costingabsorption costing exam questions