Absorption and Variable Costing (Managerial Accounting)

1. Using absorption costing, fixed manufacturing overhead costs are best described as

a. Direct period costs

b. Indirect period costs

c. Direct product costs

d. Indirect product costs

2. If production is higher than sales, then absorption costing income is expected to be

a. Higher than variable costing income

b. Equal to the variable costing income

c. Lower than variable costing income

d. Erratic under variable costing

3. HJW Company produced 10,000 units and sold 9,000 units. Fixed manufacturing overhead costs were P20,000, and variable manufacturing overhead costs were P3 per unit. For the period, one would expect net income under the absorption costing method to be

a. 2,000 more than net income under variable costing method

b. 5,000 more than net income under variable costing method

c. 2,000 less than net income under variable costing method

d. 5,000 less than net income under variable costing method

4. Ur Universe Company has operating income of P50,000 using direct costing for a given period. Beginning and ending inventories for were 13,000 units and 18,000 units, respectively. If the fixed factory overhead application rate is P2 per unit, the operating income using the absorption costing is:

a. 40,000

b. 50,000

c. 60,000

d. 70,000

5. Sunshine Company had 16,000 units in its beginning inventory. During the year, the company's variable production costs were P6 per unit and its fixed manufacturing overhead costs were P4 per unit. The company's net income for the year was P24,000 lower under absorption costing than it was under variable costing. Given these facts, the number of units in the ending inventory must have been

a. 22,000 units

b. 10,000 units

c. 6,000 units

d. 4,000 units

6. HJW1023 Co. had a net income of P85,500 using variable costing and net income of P90,000 using absorption costing. Total fixed manufacturing overhead cost was P150,000, and production was 100,000 units. Between the beginning and end of the year, the inventory level

a. increased by 4,500 units

b. decreased by 4,500 units

c. increased by 3,000 units

d. decreased by 3,000 units

7. Chocoleyt Company's 2019 fixed manufacturing overhead costs totaled P100,000 and variable selling costs totaled P80,000. Under direct (variable) costing, how should these costs be classified?

Period Costs Product Costs

a. 0 180,000

b. 80,000 100,000

c. 100,000 80,000

d. 180,000 0

8. Under variable costing,

a. Net income will tend to move upward and downward in response to changes in level of

production.

b. Inventory costs will always be lower than under the absorption costing.

c. Net income will tend to vary inversely with production changes.

d. Net income will always be higher than under the absorption costing.

9. Which of the following must be known in order to institute a direct (variable) costing system?

a. The controllable and noncontrollable components of all costs related to production.

b. Standard production rates and times for all elements of production.

c. Contribution margin and break-even point for all goods in production.

d. The variable and fixed components of all costs related to production.

10. Income under absorption costing may differ from income determined under variable costing. How is this difference calculated?

a. Change in the quantity of units in inventory times the fixed factory overhead rate per unit.

b. Number of units produced during the period times the fixed factory overhead rate per unit.

c. Change in quantity of units in inventory times the variable manufacturing cost per unit.

d. Number of units produced during the period times the variable manufacturing cost per unit.

11. What accounts for profit difference between absorption costing and variable costing method?

a. Difference in fixed cost incurred.

b. Difference in variable cost incurred.

c. Difference in sales revenue.

d. Difference in inventory valuation.

12. When production exceeds sales, fixed manufacturing overhead costs

a. Are released from inventory under absorption costing.

b. Are deferred in inventory under absorption costing.

c. Are released from inventory under variable costing.

d. Are deferred in inventory under variable costing.

13. Variable costing and absorption costing will show the same incomes when there are no

a. Beginning inventories c. Variable costs

b. Ending inventories d. Beginning and ending inventories

14. Which of the following statements is correct regarding absorption costing and variable costing?

a. Overhead costs are treated in the same manner under both costing methods.

b. If finished goods inventory increases, absorption costing results in higher income.

c. Variable manufacturing costs are lower under variable costing.

d. Gross margins are the same under both costing methods.

15. Absorption costing and variable costing differs in that Edom Co. had the same activity in 2019 as in 2018 except that production was higher in 2019 than in 2018. Edom will show

a. Higher income in 2019 than in 2018.

b. The same income in both years.

c. The same income in both years under variable costing.

d. The same income in both years under absorption costing.