Absorption and Variable Costing quiz Cost Accounting Quiz On Feb 22, 2026 Share Follow the Facebook page Accountants Quiz and join the group Accounting Quiz Absorption and Variable Costing 12 questions in 12 minutes Pass Score 70% The questions change when you repeat the exam 1 / 12 beta, Inc., pays bonuses to its managers based on operating income. The company uses absorption costing, and overhead is applied on the basis of direct labor hours. To increase bonuses, beta‟s managers may do all of the following except Decrease production of those items requiring the most direct labor Produce those products requiring the most direct labor Defer expenses such as maintenance to a future period Increase production schedules independent of customer demands Under an absorption costing system, income can be manipulated by producing more products than are sold because more fixed manufacturing overhead will be allocated to the ending inventory. When inventory increases, some fixed costs are capitalized rather than expensed. Decreasing production, however, will result in lower income because more of the fixed manufacturing overhead will be expensed 2 / 12 The primary difference between absorption and variable costing is that variable costing treats Only direct materials and direct labor as product cost Only direct materials, direct labor, the variable portion of manufacturing overhead, and the variable portion of selling and administrative expenses as product cost Only direct materials, direct labor, and the variable portion of manufacturing overhead as product costs Direct materials, direct labor, the variable portion of manufacturing overhead, and an allocated portion of fixed manufacturing overhead as product costs Variable costing treats only direct materials, direct labor, and the variable portion of manufacturing overhead as product costs 3 / 12 The contribution margin is the excess of revenues over Direct cost Manufacturing 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 4 / 12 a manufacturing company uses variable costing to cost inventories, which of the following costs are considered inventoriable costs? Only raw material and direct labor costs Only raw material, direct labor, and variable and fixed manufacturing overhead costs Only raw material, direct labor, variable manufacturing overhead, and variable selling and administrative costs Only raw material, direct labor, and variable manufacturing overhead costs Under variable costing, only variable costs (direct materials, direct labor, and variable overhead) are considered product costs 5 / 12 Dawn Company has significant fixed overhead costs in the manufacturing of its sole product, auto mufflers. For internal reporting purposes, in which one of the following situations would ending finished goods inventory be higher under direct (variable) costing rather than under absorption costing? If more units were produced than were sold during a given year If more units were sold than were produced during a given year None of these situations In all cases when ending finished goods inventory exists The monetary value of ending inventory is never higher under direct costing than under absorption costing because fewer costs are capitalized under direct costing 6 / 12 ELG Company‟s management would like to determine profitability of its Alpha Doll product line. To eliminate the possibility of profit distortion due to changes in production, the managers should primarily review Absorption costing income statements Multi step income statements Cash flow statements Variable (direct) costing income statements Variable costing income statements will help determine profitability of just the Alpha Doll product line. Fixed costs will not change because they are sunk, so they are not important in determining profitability. The variable portion of a fixed cost will already be taken into consideration in the variable costing income statements 7 / 12 Which method of inventory costing treats direct manufacturing costs and manufacturing overhead costs, both variable and fixed, as inventoriable costs? Conversion costing Direct costing Absorption costing Variable 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 8 / 12 The difference between the sales price and total variable costs is Net profit The contribution margin The breakeven point Gross operating profit The contribution margin is calculated by subtracting all variable costs from sales revenue. It represents the portion of sales that is available for covering fixed costs and profit 9 / 12 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 ? Postpone $1.8 million of discretionary equipment maintenance until next year Implement, with the aid of the controller, an activity-based costing and activity-based management system Step up production so that more manufacturing costs are deferred into inventory Cut $2.3 million of advertising and marketing costs 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 10 / 12 Which one of the following statements is true regarding absorption costing and variable costing? Variable manufacturing costs are lower under variable costing Gross margins are the same under both costing methods If finished goods inventory increases, absorption costing results in higher income Overhead costs are treated in the same manner under both costing methods Under variable costing, inventories are charged only with the variable costs of production. Fixed manufacturing costs are expensed as period costs. Absorption costing charges to inventory all costs of production. If finished goods inventory increases, absorption costing results in higher income because it capitalizes some fixed costs that would have been expensed under variable costing. When inventory declines, variable costing results in higher income because some fixed costs capitalized under the absorption method in prior periods are expensed in the current period 11 / 12 Which of the following statements is true for a firm that uses variable costing ? Product costs include variable administrative costs 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 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 12 / 12 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? Airplane depreciation, baggage handling, and airline marketing Communication system operation, food service, and ramp personnel 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 Your score is LinkedIn Facebook Twitter VKontakte 0% Send feedback Absorption and Variable Costing quizabsorption costingabsorption costing exam questions
