Responsibility Accounting
(C. Variable Costing & S
C. VARIABLE COSTING AND SEGMENTED REPORTING manufactured.
B. Profits fluctuate with sales
THEORIES: C. An idle facility variation is calculated
Direct costing D. Product costs include “direct” (variable) administrative costs.
1. A basic tenet of direct costing is that period costs should be currently expensed. What is the
rationale behind this procedure? 5. Which of the following is an argument against the use of direct (var
A. Period costs are uncontrollable and should not be charged to a specific product. A. Absorption costing overstates the balance sheet value of inven
B. Period costs are generally immaterial in amount and the cost of assigning the amounts to B. Variable factory overhead is a period cost.
specific products would outweigh the benefits. C. Fixed factory overhead is difficult to allocate properly.
C. Allocation of period costs is arbitrary at best and could lead to erroneous decisions by D. Fixed factory overhead is necessary for the production of a pro
management.
D. Because period costs will occur whether or not production occurs, it is improper to allocate 10. Advocates of variable costing for internal reporting purposes do
these costs to production and defer a current costs of doing business. following points?
A. The matching concept
17. In a variable costing system, product cost includes B. Price-volume relationships
A. direct materials, direct labor, variable overhead C. Absorption costing does not include selling and administra
B. direct materials, direct labor, fixed overhead inventoriable cost
C. direct labor, variable overhead, fixed overhead D. Production influences income under absorption costing
D. direct materials, variable overhead, fixed overhead
13. Which costing method is not acceptable to the SFAS external repor
2. Which of the following must be known about production process in order to institute a direct A. absorption costing C. full costing
costing system? B. variable costing D. all of these are
A. The variable and fixed components of all costs related to production.
B. The controllable and noncontrollable components of all costs related to production. 16. Variable costing can be used for
C. Standard production rates and times for all elements of production. A. external reporting
D. Contribution margin and breakeven point for all goods in production. B. internal reporting
C. either external reporting or internal reporting
3. Under the direct costing concept, unit product cost would most likely be increased by D. neither external reporting nor internal reporting
A. A decrease in the remaining useful life of factory machinery depreciated on the units-of-
production method. 12. Which of the following is not true of variable costing?
B. A decrease in the number of units produced. A. Profits may increase though sales decrease.
C. An increase in the remaining useful life of factory machinery depreciated on the sum-of- B. Profits fluctuate with sales.
the-years’-digits method. C. The cost of the product consists of all variable production cos
D. An increase in the commission paid to salesmen for each unit sold. D. The income statement under variable costing does not
variance.
4. Which of the following statements is true for a firm that uses variable (direct) costing?
A. The cost of a unit of product changes because of changes in the number of units Contribution margin format income statement
413
, Responsibility Accounting
(C. Variable Costing & S
15. When variable costing is used, the income statement is usually prepared using produced equal units sold.
A. a contribution margin format C. a functional format D. Absorption costing net income exceeds variable costing
B. an operational format D. all of these produced are greater than units sold.
Absorption costing 22. Net earnings determined using full absorption costing can be
8. Absorption costing of inventories, as required by GAAP, has been criticized for encouraging determined using direct costing by computing the difference betwee
managers to increase year-end inventories in order to boost reported profits. Which of the A. Inventoried fixed costs in the beginning and ending inventories
following techniques is the most effective at resolving this problem? underapplied fixed factory overhead.
A. Senior management control of inventory levels B. Inventoried discretionary costs in the beginning and ending inv
B. Adoption of just-in-time (JIT) production system C. Gross margin (absorption costing method) and contribut
C. Reward managers based upon the residual income approach method).
D. Use variable costing to determine income for bonus purposes D. Sales as recorded under the direct costing method and sa
absorption costing method.
11. When absorption costing is used, all of the following costs are considered product costs
except 23. Net profit under absorption costing may differ from net profit deter
A. direct labor C. variable selling and administrative costs How is this difference calculated?
B. variable overhead D. fixed overhead A. Change in the quantity of all units in inventory times the releva
B. Change in the quantity of all units produced times the relevant
21. Unabsorbed fixed overhead costs in an absorption costing system are C. Change in the quantity of all units in inventory times the releva
A. Fixed factory costs not allocated to units produced. D. Change in the quantity of all units produced times the relevant
B. Variable overhead costs not allocated to units produced.
C. Excess variable overhead costs. Sensitivity analysis
D. Costs that should be controlled. 20. The level of production affects income under which of the following
A. absorption costing C. variable costin
Variable costing vs. Absorption costing B. both absorption and variable costing D. neither absorp
6. What is the primary difference between variable and absorption costing?
A. inclusion of fixed selling expenses in product costs 18. Variable-costing income will usually exceed absorption costing inco
B. inclusion of variable factory overhead in period costs A. sales exceed production C. production exc
C. inclusion of variable selling expenses in product costs B. production and sales are equal D. none of these
D. inclusion of fixed factory overhead in product costs
19. Variable costing net income is
7. Which of the following statements is true? A. higher than absorption net income when more units are sold th
A. Absorption costing net income exceeds variable costing net income when units B. lower than absorption net income when more units are produce
produced and sold are equal. C. the same as absorption net income when all units produced ar
B. Variable costing net income exceeds absorption costing net income when units D. all of the above
produced exceed units sold.
C. Variable costing net income exceeds absorption costing net income when units 9. A manufacturing company prepares income statements using bo
414
(C. Variable Costing & S
C. VARIABLE COSTING AND SEGMENTED REPORTING manufactured.
B. Profits fluctuate with sales
THEORIES: C. An idle facility variation is calculated
Direct costing D. Product costs include “direct” (variable) administrative costs.
1. A basic tenet of direct costing is that period costs should be currently expensed. What is the
rationale behind this procedure? 5. Which of the following is an argument against the use of direct (var
A. Period costs are uncontrollable and should not be charged to a specific product. A. Absorption costing overstates the balance sheet value of inven
B. Period costs are generally immaterial in amount and the cost of assigning the amounts to B. Variable factory overhead is a period cost.
specific products would outweigh the benefits. C. Fixed factory overhead is difficult to allocate properly.
C. Allocation of period costs is arbitrary at best and could lead to erroneous decisions by D. Fixed factory overhead is necessary for the production of a pro
management.
D. Because period costs will occur whether or not production occurs, it is improper to allocate 10. Advocates of variable costing for internal reporting purposes do
these costs to production and defer a current costs of doing business. following points?
A. The matching concept
17. In a variable costing system, product cost includes B. Price-volume relationships
A. direct materials, direct labor, variable overhead C. Absorption costing does not include selling and administra
B. direct materials, direct labor, fixed overhead inventoriable cost
C. direct labor, variable overhead, fixed overhead D. Production influences income under absorption costing
D. direct materials, variable overhead, fixed overhead
13. Which costing method is not acceptable to the SFAS external repor
2. Which of the following must be known about production process in order to institute a direct A. absorption costing C. full costing
costing system? B. variable costing D. all of these are
A. The variable and fixed components of all costs related to production.
B. The controllable and noncontrollable components of all costs related to production. 16. Variable costing can be used for
C. Standard production rates and times for all elements of production. A. external reporting
D. Contribution margin and breakeven point for all goods in production. B. internal reporting
C. either external reporting or internal reporting
3. Under the direct costing concept, unit product cost would most likely be increased by D. neither external reporting nor internal reporting
A. A decrease in the remaining useful life of factory machinery depreciated on the units-of-
production method. 12. Which of the following is not true of variable costing?
B. A decrease in the number of units produced. A. Profits may increase though sales decrease.
C. An increase in the remaining useful life of factory machinery depreciated on the sum-of- B. Profits fluctuate with sales.
the-years’-digits method. C. The cost of the product consists of all variable production cos
D. An increase in the commission paid to salesmen for each unit sold. D. The income statement under variable costing does not
variance.
4. Which of the following statements is true for a firm that uses variable (direct) costing?
A. The cost of a unit of product changes because of changes in the number of units Contribution margin format income statement
413
, Responsibility Accounting
(C. Variable Costing & S
15. When variable costing is used, the income statement is usually prepared using produced equal units sold.
A. a contribution margin format C. a functional format D. Absorption costing net income exceeds variable costing
B. an operational format D. all of these produced are greater than units sold.
Absorption costing 22. Net earnings determined using full absorption costing can be
8. Absorption costing of inventories, as required by GAAP, has been criticized for encouraging determined using direct costing by computing the difference betwee
managers to increase year-end inventories in order to boost reported profits. Which of the A. Inventoried fixed costs in the beginning and ending inventories
following techniques is the most effective at resolving this problem? underapplied fixed factory overhead.
A. Senior management control of inventory levels B. Inventoried discretionary costs in the beginning and ending inv
B. Adoption of just-in-time (JIT) production system C. Gross margin (absorption costing method) and contribut
C. Reward managers based upon the residual income approach method).
D. Use variable costing to determine income for bonus purposes D. Sales as recorded under the direct costing method and sa
absorption costing method.
11. When absorption costing is used, all of the following costs are considered product costs
except 23. Net profit under absorption costing may differ from net profit deter
A. direct labor C. variable selling and administrative costs How is this difference calculated?
B. variable overhead D. fixed overhead A. Change in the quantity of all units in inventory times the releva
B. Change in the quantity of all units produced times the relevant
21. Unabsorbed fixed overhead costs in an absorption costing system are C. Change in the quantity of all units in inventory times the releva
A. Fixed factory costs not allocated to units produced. D. Change in the quantity of all units produced times the relevant
B. Variable overhead costs not allocated to units produced.
C. Excess variable overhead costs. Sensitivity analysis
D. Costs that should be controlled. 20. The level of production affects income under which of the following
A. absorption costing C. variable costin
Variable costing vs. Absorption costing B. both absorption and variable costing D. neither absorp
6. What is the primary difference between variable and absorption costing?
A. inclusion of fixed selling expenses in product costs 18. Variable-costing income will usually exceed absorption costing inco
B. inclusion of variable factory overhead in period costs A. sales exceed production C. production exc
C. inclusion of variable selling expenses in product costs B. production and sales are equal D. none of these
D. inclusion of fixed factory overhead in product costs
19. Variable costing net income is
7. Which of the following statements is true? A. higher than absorption net income when more units are sold th
A. Absorption costing net income exceeds variable costing net income when units B. lower than absorption net income when more units are produce
produced and sold are equal. C. the same as absorption net income when all units produced ar
B. Variable costing net income exceeds absorption costing net income when units D. all of the above
produced exceed units sold.
C. Variable costing net income exceeds absorption costing net income when units 9. A manufacturing company prepares income statements using bo
414
