Chapter 7 Variable Costing: A Tool for Management
True/False Questions
1. Under variable costing, only variable production costs are treated as product costs.
Ans: True
2. Under variable costing, variable selling and administrative costs are included in product costs.
Ans: False
3. Absorption costing treats all manufacturing costs as product costs.
Ans: True
4. In the preparation of financial statements using variable costing, fixed manufacturing overhead is treated as a period cost.
Ans: True
5. Absorption costing treats fixed manufacturing overhead as a period cost.
Ans: False
6. When the number of units in work in process and finished goods inventories increase, absorption costing net operating income will typically be greater than variable costing net operating income.
Ans: True LO: 2,3
7. Net operating income computed using absorption costing will always be greater than net operating income computed using variable costing.
Ans: False LO: 2
8. When reconciling variable costing and absorption costing net operating income, fixed manufacturing overhead costs released from inventory under absorption costing should be added to variable costing net operating income to arrive at the absorption costing net operating income.
Ans: False
9. When production exceeds sales for the period, absorption costing net operating income will exceed variable costing net operating income.
Ans: True
10. Under variable costing it may be possible to report a profit even if the company sells less than the break-even volume of sales.
Ans: False
11. Absorption costing net operating income is closer to the net cash flow of a period than is variable costing net operating income.
Ans: False
12. Variable costing is not permitted for income tax purposes, but it is widely accepted for external financial reports.
Ans: False
13. A basic concept of the contribution approach and variable costing is that fixed costs are not important in an organization.
Ans: False
14. Variable costing is better suited to cost-volume-profit calculations than absorption costing.
Ans: True
15. When lean production is introduced, the difference in net operating income computed under the absorption and variable costing methods is reduced.
Ans: True
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