Cost Accounting QuizAbsorption and Variable Costing quiz 23/06/2026 1 min read Absorption and Variable Costing 12 questions in 12 minutes Pass Score 70% The questions change when you repeat the exam 1 / 12 Which one of the following is an advantage of using variable costing ? Variable costing complies with generally accepted accounting principles Variable costing makes cost-volume relationships more easily apparent Variable costing complies with the U.S. Internal Revenue Code Variable costing is more relevant to long-run pricing strategies 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. 2 / 12 When a firm prepares financial reports by using absorption costing : Decreased output and constant sales result in increased profits Profits will always increase with increases in sales Profits will always decrease with decreases in sales 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 3 / 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 ? Implement, with the aid of the controller, an activity-based costing and activity-based management system Postpone $1.8 million of discretionary equipment maintenance until next year Cut $2.3 million of advertising and marketing costs Step up production so that more manufacturing costs are deferred into inventory 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 4 / 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 Cash flow statements Multi step income statements Variable (direct) costing income statements Absorption 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 5 / 12 Which of the following statements istruefor a firm that uses variable costing ? The cost of a unit of product changes because of changes in number of units manufactured Product costs include variable administrative costs Profits fluctuate with sales An idle facility variation is calculated 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 / 12 Which one of the following is thebestreason for using variable costing? All costs are variable in the long term Variable costing is acceptable for income tax reporting purposes Fixed factory overhead is more closely related to the capacity to produce than to the production of specific units 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. Variable costing thus more accurately depicts the variations in cost resulting from changes in the level of output 7 / 12 When comparing absorption costing with variable costing, the difference in operating income can be explained by the difference between the Ending inventory in units and the beginning inventory in units, multiplied by the budgeted fixed manufacturing cost per unit Ending inventory in units and the beginning inventory in units, multiplied by the unit sales price Units sold and the units produced, multiplied by the budgeted variable manufacturing cost per unit Units sold and the units produced, multiplied by the unit sales price Absorption and variable costing differ in their treatment of fixed overhead: It is capitalized as inventory under absorption costing and not under variable costing. Thus, the difference in operating income between the two can be calculated as the difference between the ending inventory in units and the beginning inventory in units, multiplied by the budgeted fixed manufacturing cost per unit 8 / 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? Communication system operation, food service, and ramp personnel Flight crew salary, fuel, and engine maintenance Airplane depreciation, baggage handling, and airline marketing Fuel, food service, and airport landing fees Fuel, food service, and airport landing fees are all variable and traceable to individual flights 9 / 12 Which method of inventory costing treats direct manufacturing costs and manufacturing overhead costs, both variable and fixed, as inventoriable costs? Conversion costing Absorption costing Direct 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 10 / 12 Which one of the following statements istrueregarding absorption costing and variable costing? Overhead costs are treated in the same manner under both costing methods If finished goods inventory increases, absorption costing results in higher income Variable manufacturing costs are lower under variable costing Gross margins are the same 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 The contribution margin is the excess of revenues over Manufacturing cost Cost of goods sold Direct cost All variable costs 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 12 / 12 The difference between the sales price and total variable costs is The contribution margin Gross operating profit The breakeven point Net 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 Your score is LinkedIn Facebook Twitter VKontakte 0% Send feedback 🚀 Join Telegram Group 📢 Telegram Channel 📘 Facebook Group 👍 Facebook Page 📌 Pinterest
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