MAS.

106_VARIABLE COSTING AND ABSORPTION COSTING

1.Only direct materials, direct labor, and variable d. under variable costing, but not under
manufacturing overhead costs are considered absorption costing.
product costs when using 8. Which cost is not charged to the product under
a. full costing.
variable costing?
b. absorption costing.
a. Direct materials
c. variable costing.
b. Direct labor
d. product costing.
c. Variable manufacturing overhead
2. When a company assigns the costs of direct d. Fixed manufacturing overhead
materials, direct labor, and both variable and 9. Which cost is charged to the product under
fixed manufacturing overhead to products, that variable costing?
company is using a. Variable manufacturing overhead
a. operations costing. b. Fixed manufacturing overhead
b. absorption costing. c. Variable administrative expenses
c. variable costing. d. Fixed administrative expenses
d. product costing.
10. Variable costing
3. Companies recognize fixed manufacturing a. is used for external reporting purposes.
overhead costs as period costs (expenses) when b. is required under GAAP.
incurred when using c. treats fixed manufacturing overhead as a
a. full costing. period cost.
b. absorption costing. d. is also known as full costing.
c. product costing.
d. variable costing. Use the following information for questions 11–15.
4. Under absorption costing and variable costing, Sprinkle Co. sells its product for $60 per unit. During
how are fixed manufacturing costs treated? 2016, it produced 60,000 units and sold 50,000 units
Absorption Variable (there was no beginning inventory). Costs per unit are:
a. Product Cost Product Cost direct materials $15, direct labor $9, and variable
b. Product Cost Period Cost overhead $3. Fixed costs are: $720,000 manufacturing
c. Period Cost Product Cost overhead, and $90,000 selling and administrative
d. Period Cost Period Cost expenses.
5. Under absorption costing and variable costing, 11. The per unit manufacturing cost under absorption
how are variable manufacturing costs treated? costing is
Absorption Variable a. $24.
a. Product Cost Product Cost b. $27.
b. Product Cost Period Cost c. $39.
d. $40.
c. Period Cost Product Cost
d. Period Cost Period Cost 12. The per unit manufacturing cost under variable
6. Under absorption costing and variable costing, costing is
how are direct labor costs treated? a. $24.
b. $27.
Absorption Variable
c. $39.
a. Product Cost Product Cost d. $40.
b. Product Cost Period Cost
c. Period Cost Product Cost 13. Cost of goods sold under absorption costing is
d. Period Cost Period Cost a. $1,350,000.
b. $1,620,000.
7. Fixed selling expenses are period costs c. $1,950,000.
a. under both absorption and variable costing. d. $1,560,000.
b. under neither absorption nor variable 14. Ending inventory under variable costing is
costing. a. $270,000.
c. under absorption costing, but not under b. $390,000.
variable costing. c. $600,000.

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d. $1,350,000.
15. Under absorption costing, what amount of fixed 21. Some fixed manufacturing overhead costs of the
overhead is deferred to a future period? current period are deferred to future periods
a. $30,000 under
b. $120,000 a. absorption costing.
c. $150,000 b. variable costing.
d. $720,000 c. both absorption and variable costing.
d. neither absorption nor variable costing.
16. Net income under absorption costing is gross
profit less Use the following information for questions 22–26.
a. cost of goods sold.
b. fixed manufacturing overhead and fixed Nielson Corp. sells its product for $6,600 per unit.
selling and administrative expenses. Variable costs per unit are: manufacturing, $3,600, and
c. fixed manufacturing overhead and variable selling and administrative, $75. Fixed costs are: $18,000
manufacturing overhead.
manufacturing overhead, and $24,000 selling and
d. variable selling and administrative expenses
and fixed selling and administrative administrative. There was no beginning inventory at
expenses. 1/1/15. Production was 20 units per year in 2015–2017.
Sales were 20 units in 2015, 16 units in 2016, and 24
17. Net income under variable costing is contribution units in 2017.
margin less
a. cost of goods sold. 22. Income under absorption costing for 2016 is
b. fixed manufacturing overhead and fixed a. $4,800.
selling and administrative expenses. b. $8,400.
c. fixed manufacturing overhead and variable c. $9,600.
manufacturing overhead. d. $13,200.
d. variable selling and administrative expenses
and fixed selling and administrative 23. Income under absorption costing for 2017 is
expenses. a. $19,800.
b. $23,400.
18. The manufacturing cost per unit for absorption c. $24,600.
costing is d. $28,200.
a. usually, but not always, higher than
manufacturing cost per unit for variable 24. Income under variable costing for 2016 is
costing. a. $4,800.
b. usually, but not always, lower than b. $8,400.
manufacturing cost per unit for variable c. $9,600.
costing. d. $13,200.
c. always higher than manufacturing cost per
unit for variable costing. 25. Income under variable costing for 2017 is
d. always lower than manufacturing cost per a. $19,800.
unit for variable costing. b. $23,400.
c. $24,600.
19. The one primary difference between variable and d. $28,200.
absorption costing is that under
26. For the three years 2015–2017,
a. variable costing, companies charge the fixed
a. absorption costing income exceeds variable
manufacturing overhead as an expense in
costing income by $8,000.
the current period.
b. absorption costing income equals variable
b. absorption costing, companies charge the
costing income.
fixed manufacturing overhead as an expense
c. variable costing income exceeds absorption
in the current period.
costing income by $8,000.
c. variable costing, companies charge the
d. absorption costing income may be greater
variable manufacturing overhead as an
than, equal to, or less than variable costing
expense in the current period.
income, depending on the situation.
d. absorption costing, companies charge the
variable manufacturing overhead as an 27. When production exceeds sales,
expense in the current period. a. some fixed manufacturing overhead costs
20. Net income under absorption costing is higher are deferred until a future period under
absorption costing.
than net income under variable costing
b. some fixed manufacturing overhead costs
a. when units produced exceed units sold.
are deferred until a future period under
b. when units produced equal units sold.
variable costing.
c. when units produced are less than units sold.
c. variable and fixed manufacturing overhead
d. regardless of the relationship between units
costs are deferred until a future period under
produced and units sold.
absorption costing.

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d. variable and fixed manufacturing overhead b. The use of variable costing is consistent with
costs are deferred until a future period under cost-volume-profit analysis.
variable costing. c. Net income computed under variable costing
is not closely tied to changes in sales levels.
28. When production exceeds sales, d. More than one of the above.
a. ending inventory under variable costing will 33. Companies that use just-in-time processing
exceed ending inventory under absorption techniques will
costing.
a. have greater differences between absorption
b. ending inventory under absorption costing
and variable costing net income.
will exceed ending inventory under variable
b. have smaller differences between absorption
costing.
and variable costing net income.
c. ending inventory under absorption costing
c. not be able to use absorption costing.
will be equal to ending inventory under
d. not be able to use variable costing.
variable costing.
d. ending inventory under absorption costing
may exceed, be equal to, or be less than
ending inventory under variable costing.
29. Management may be tempted to overproduce
when using
a. variable costing, in order to increase net
income.
b. variable costing, in order to decrease net
income.
c. absorption costing, in order to increase net
income.
d. absorption costing, in order to decrease net
income.
30. If a division manager’s compensation is based
upon the division’s net income, the manager may
decide to meet the net income targets by
increasing production when using
a. variable costing, in order to increase net
income.
b. variable costing, in order to decrease net
income.
c. absorption costing, in order to increase net
income.
d. absorption costing, in order to decrease net
income.
31. Expected sales for next year for the Beresford
Company is 150,000 units. Curt Planters,
manager of the Beresford Division, is under
pressure to improve the performance of the
Division. As he plans for next year, he has to
decide whether to produce 150,000 units or
170,000 units. The Beresford Company will have
higher net income if Curt Planters decides to
produce
a. 170,000 units if income is measured under
absorption costing.
b. 170,000 units if income is measured under
variable costing.
c. 150,000 units if income is measured under
absorption costing.
d. 150,000 units if income is measured under
variable costing.
32. Which of the following is a potential advantage
of variable costing relative to absorption costing?
a. Net income is affected by changes in
production levels.

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