Test I. Write T if the statement is true and F if the statement is false.

1) Absorption costing considers fixed selling and administrative costs as product costs.

2) Absorption costing is required by the Generally Accepted Accounting Principles (GAAP) for financial statements issued to investors, creditors, and other external users.

3) Absorption costing considers direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead as product costs.

4) In absorption costing, all product costs are recorded first as assets in the inventory accounts.

5) The traditional income statement format is prepared under absorption costing.

6) Under absorption costing, all product costs are first recorded as assets in inventory accounts, and later transferred to the Cost of Goods Sold account when sold.

7) The traditional income statement format calculates operating income as gross profit minus selling and administrative expenses.

8) Variable costing is used for external reporting purposes, and absorption costing is used for internal decision-making purposes.

8) A static budget is prepared for only one level of sales volume.

9) A favorable variance reflects a decrease in operating income.

10) A variance is the difference between an actual amount and the budgeted amount.

11) After comparing budgets with the actual results, the feedback allows managers to determine what, if any, corrective action should be taken.

12) A budget is a financial plan that managers use to coordinate a business's activities.

13) A standard is a sales price, cost, or quantity that is expected under normal conditions.

14) A standard cost system is an accounting system that uses standards for product costs.

15) In a standard costing system, each input of direct materials, direct labor, and manufacturing overhead has a cost standard and an efficiency standard. 16) Budgeting requires managers to develop overall business goals and budget for specific actions to achieve the goals.

17) Budgets provide a benchmark that motivates employees and helps managers evaluate performance.

18) Developing a budget reduces coordination and communication at different levels in an organization.

19) A budget represents the plans that a company has in place to achieve its goals.

20) An objective of the budgeting process is to communicate a single, unified, comprehensive plan for the business.