Multiple choice:

a. The basic assumption made in a variable costing system with respect to fixed manufacturing costs is that fixed manufacturing costs are:

(1) A sunk cost. (2) A product cost. (3) A part of inventory. (4) A period cost.

b. Which costs are included in inventory under variable costing?

(1) Only prime costs. (2) Only variable manufacturing costs. (3) All variable costs. (4) All variable and fixed manufacturing costs.

c. Inventory under the variable costing method includes:

(1) Direct materials cost and direct labor cost, but no factory overhead cost.

(2) Direct materials cost, direct labor cost, and variable factory overhead cost.

(3) Prime cost but not conversion cost.

(4) Prime cost and all conversion cost.

d. Which of the following must be known about a production process in order to institute a variable costing system?

(1) The variable and fixed components of all costs related to production.

(2) The controllable and noncontrollable components of all costs related to production.

(3) Standard production rates and times for all elements of production.

(4) Contribution margin and break-even point for all goods in production.