ABSORPTION

COSTING
MARK GLENN G. PARPAN, CPA
The following statements about the adoption of
variable costing are true, except:

A. All fixed manufacturing costs are recognized as

period costs.
B. A direct cost may not become a product cost.
C. It is an acceptable method for general reporting
purposes.
D.An indirect cost may be assigned as part of
product cost.
A cost that is included as part of product costs
under both absorption costing and direct costing
is:

A. managerial staff costs

B. insurance
C. variable marketing expenses.
D. taxes on factory building
E. variable materials handling labor
Under variable costing,

A. all product costs are variable.

B. all period costs are variable.
C. all product costs are fixed
D. product costs are both fixed and variable.
Which of the following is not associated with
absorption costing?

A. functional format
B. gross margin
C. Period costs
D. contribution margin
MNO Products, Inc. planned and actually
manufactured 200,000 units of its single product in
2000, its first year of operations. Variable
manufacturing costs were P30 per unit of product.
Planned and actual fixed manufacturing costs were
P600,000, and marketing and administrative costs
totaled P400,000 in 2000. MNO sold 120,000 units of
product in 2000 at a selling price of P40 per unit.
What is the cost of the ending inventory assuming
variable costing is used?

A. P2,400,000 C. P2,250,000
Welk Company produces a single product. Last year,
the 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 operating income for the year was

P24,000 higher under absorption costing than it was
under variable costing. Given these facts, the number
of units in the ending inventory must have been:
Olympia Company produces a single product. Last
year, the company had a net operating income of
P92,000 using absorption costing and a net operating
income of P98,600 using variable costing.

If the fixed manufacturing overhead cost was P3.00

per unit for the last two years, and if production was
18,000 units, then sales in units last year were:
Miya Company produces a single product. Last year,
the company had 25,000 units in its ending inventory.
Miya's variable production costs were P10 per unit and
fixed manufacturing overhead costs were P5 per unit.

The company's net operating income last year was

P10,000 higher under variable costing than it was
under absorption costing. Given these facts, the
number of units of product in beginning inventory last
year must have been: