1. Which is a product cost under absorption costing but not under variable costing?

a. Fixed marketing costs c. Fixed manufacturing costs

b. Variable marketing costs d. Variable manufacturing costs

2. Under absorption costing, fixed manufacturing overhead costs are best described as

a. Direct period costs c. Direct product costs

b. Indirect period costs d. Indirect product costs

3. Under variable costing,

a. All product costs are variable c. All product costs are fixed

b. All period costs are variable d. All period costs are fixed

4. As compared to variable costing inventory cost, inventory cost under absorption costing is typically

a. Lower c. The same

b. Higher d. The same or lower in certain cases

Items 5 to 7 are based on the following information

Panda Company manufactures a single product. Unit variable production costs are P 20 and fixed

production costs are P 150,000. White uses a normal activity of 10,000 units. White began the year with

no inventory, produced 12,000 units, and sold 7,500 units.

5. How much is the unit product cost under variable costing?

a. P 20.00 c. P 35.00

b. P 32.50 d. P 40.00

6. How much is the unit product cost under absorption costing?

a. P 20.00 c. P 35.00

b. P 32.50 d. P 40.00

7. What is the volume or capacity variance under absorption costing?

a. P 24,000 unfavorable c. P 30,000 unfavorable

b. P 24,000 favorable d. P 30,000 favorable

NOTE: volume variance = (actual production - normal production) x unit FFOH

8. If production is higher than sales, then absorption costing profit is expected to be

a. Lower than variable costing profit c. Equal to the variable costing profit

b. Higher than variable costing profit d. Incomparable with variable costing profit

9. Bren Company produced 10,000 units and sold 9,000 units. Fixed manufacturing overhead costs were

P20,000, and variable manufacturing overhead costs were P 3 per unit. Which of the following best

describes the profit under the absorption costing method?

a. P 2,000 less than profit under variable costing method

b. P 5,000 less than profit under variable costing method

c. P 2,000 more than profit under variable costing method

d. P 5,000 more than profit under variable costing method

10. If ending inventory is lower than beginning inventory, then absorption costing profit is expected to be

a. Lower than variable costing profit c. Equal to the variable costing profit

b. Higher than variable costing profit d. Incomparable with variable costing profit

11. Dah Company has an operating income of P 50,000 under direct costing. Beginning and ending

inventories were 13,000 units and 18,000 units, respectively. If the fixed factory overhead application

rate is P 2 per unit, then what is the operating income under the absorption costing?

a. P 70,000 c. P 50,000

b. P 60,000 d. P 40,000

12. Cebu Company had 16,000 units in its beginning inventory. The company's variable production costs

were P 6 per unit and its fixed manufacturing overhead costs were P 4 per unit. The company's net

income for the year was P 24,000 lower under absorption costing than it was under variable costing. How

many units does the company have in its ending inventory?

a. 10,000 units c. 6,000 units

b. 22,000 units d. 4,000 units

13. Sugbu Company had a net income of P 90,000 using variable costing and net income of P 85,500 using

absorption costing. Total fixed manufacturing overhead cost was P 150,000, and production was 100,000

units. How did the inventory level change during the year?

a. 3,000 units increase c. 4,500 units increase

b. 3,000 units decrease d. 4,500 units decrease

14. Under a just-in-time (JIT) production environment, profit under absorption costing tends to be

a. Higher than that of variable costing c. Equal to that of variable costing

b. Lower than that of variable costing d. Not equal to that of variable costing

15. Variable costing profit fluctuates with (A) ____ and does not react to changes in (B) ____.

a. (A) sales (B) production c. (A) sales (B) demand

b. (A) production (B) sales d. (A) production (B) supply

16. Product pricing is generally influenced by the following factors, except:

a. Competition c. Seller's cost structure

b. Consumer demand d. Buyer's profit objective

17. When using the absorption approach to cost-plus pricing,

a. All costs are included in the cost base.

b. The cost base is made up of the unit manufacturing costs.

c. The "plus" or markup figure contains fixed costs and desired profit.

d. The cost base is made up of the variable costs associated with the product.

18. What price adjustment strategy is usually designed to stabilize production for the selling firm?

a. Cash discounts c. Functional discounts

b. Quantity discounts d. Seasonal discounts

19. Which one of the following best represents the steps followed in target costing?

a. Use value engineering and kaizen costing to reduce costs, and determine desired price

b. Use kaizen costing to reduce costs, determine desired mark-up, and set the market price

c. Use value engineering to reduce costs, calculate target costs, and set the desired price

d. Determine market price, calculate target cost, and use value engineering to reduce costs

20. Variable costing is unacceptable for

a. Financial reporting c. Cost-volume-profit analysis

b. Transfer pricing d. Short-term decision making