Absorption, Variable, and Throughput Costing

MULTIPLE CHOICE QUESTIONS

1. Which of the following is NOT a type of absorption costing?

a. Direct costing.
b. Actual costing.
c. Normal costing.
d. None of the above.

2. Variable costing is UNACCEPTABLE for

a. managerial accounting.
b. financial accounting.
c. transfer pricing.
d. reporting by product lines for internal purposes.

3. A criticism of variable costing for managerial accounting purposes is that it

a. is not acceptable for product line segmented reporting.
b. does not reflect cost-volume-profit relationships.
c. overstates inventories.
d. might encourage managers to emphasize the short term at the expense of the long term.

4. Normal costing and standard costing differ in that

a. the two systems can show different overhead budget variances.
b. only normal costing can be used with absorption costing.
c. the two systems show different volume variances if standard hours do not equal actual hours.
d. normal costing is less appropriate for multiproduct firms.

5. Variable costing and absorption costing will show the same incomes when there are no
a. beginning inventories.
b. ending inventories.
c. variable costs.
d. beginning and ending inventories.

6. ABC had the same activity in 20X3 as in 20X2 except that production was higher in 20X3 than in 20X2.
ABC will show
a. higher income in 20X3 than in 20X2.
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.

7. The use of variable costing requires knowing

a. the contribution margin and break-even point for each product.
b. the variable and fixed components of production cost.
c. controllable and noncontrollable components of all costs.
d. the number of units of each product produced during the period.
8. Which measure of activity is likely to give the LOWEST standard fixed cost per unit?
a. Actual activity.
b. Normal capacity.
c. Budgeted activity.
d. Practical capacity.

9. Which item is NOT used to compute the fixed overhead volume variance?
a. Standard fixed cost per unit.
b. Budgeted fixed overhead.
c. Actual fixed overhead.
d. Actual quantity produced.

10. Which variance is LEAST relevant for control purposes?

a. Material use variance.
b. Fixed overhead volume variance.
c. Fixed overhead budget variance.
d. Labor efficiency variance.

11. A company that sets a standard fixed cost based on practical capacity
a. should expect unfavorable volume variances.
b. will set its selling prices too low.
c. has a higher cost per unit than a company using normal activity to set the standard.
d. usually overapplies its fixed costs.

12. A predetermined overhead rate for fixed costs is unlike a standard fixed cost per unit in that a predetermined
overhead rate is
a. based on an input factor like direct labor hours and a standard cost per unit is based on a unit of
output.
b. based on practical capacity and a standard fixed cost can be based on any level of activity.
c. used with variable costing while a standard fixed cost is used with absorption costing.
d. likely to be higher than a standard fixed cost per unit.

14. Advocates of variable costing for internal reporting purposes do NOT rely on which of the following points?
a. The matching concept.
b. Price-volume relationships.
c. Absorption costing does not include selling and administrative expenses as part of inventoriable cost.
d. Production influences income under absorption costing.
15. Calculating income under variable costing does NOT require knowing
a. unit sales.
b. unit variable manufacturing costs.
c. selling price.
d. unit production.

16. Inventoriable costs under absorption costing include

a. both fixed and variable production costs.
b. only variable production costs.
c. all production costs plus variable selling and administrative costs.
d. all production costs plus all selling and administrative costs.

17. Inventoriable costs under variable costing include

a. fixed and variable production costs.
b. variable production costs.
c. all production costs plus variable selling and administrative costs.
d. all production costs plus all selling and administrative costs.

18. Absorption costing and variable costing differ in that

a. income is lower under variable costing.
b. variable costing treats selling costs as period costs.
c. variable costing treats all variable costs as product costs.
d. inventory cost is higher under absorption costing.

19. Absorption costing differs from variable costing in that

a. standards can be used with absorption costing, but not with variable costing.
b. absorption costing inventories are more correctly valued.
c. production influences income under absorption costing, but not under variable costing.
d. companies using absorption costing have lower fixed costs.

20. Which method gives the lowest inventory cost per unit?
a. Variable costing.
b. Absorption costing using normal activity to set the standard fixed cost.
c. Absorption costing using practical capacity to set the standard fixed cost.
d. Actual absorption costing.

21. Which costs are treated differently under absorption costing and variable costing?
a. Variable manufacturing costs.
b. Fixed manufacturing costs.
c. Variable selling and administrative expenses.
d. Fixed selling and administrative expenses.

1. Under variable costing, fixed manufacturing overhead is:

A. expensed immediately when incurred.
B. never expensed.
C. applied directly to Finished-Goods Inventory.
D. applied directly to Work-in-Process Inventory.
E. treated in the same manner as variable manufacturing overhead.

2. All of the following are inventoried under variable costing except:

A. direct materials.
B. direct labor.
 C. variable manufacturing overhead.
D. fixed manufacturing overhead.
E. items "C" and "D" above.

3. All of the following are expensed under variable costing except:

A. variable manufacturing overhead.
B. fixed manufacturing overhead.
C. variable selling and administrative costs.
D. fixed selling and administrative costs.
E. items "C" and "D" above.

4. All of the following costs are inventoried under absorption costing except:
A. direct materials.
B. direct labor.
C. variable manufacturing overhead.
D. fixed manufacturing overhead.
E. fixed administrative salaries.

5. All of the following are inventoried under absorption costing except:

A. direct labor.
B. raw materials used in production.
C. utilities cost consumed in manufacturing.
D. sales commissions.
E. machine lubricant used in production.

6. The underlying difference between absorption costing and variable costing lies in the
treatment of:
A. direct labor.
B. variable manufacturing overhead.
C. fixed manufacturing overhead.
D. variable selling and administrative expenses.
E. fixed selling and administrative expenses.

7. Which of the following costs would be treated differently under absorption costing and
variable costing?
Variable Fixed
Direct Manufacturing Administrativ
Labor Overhead e
Expenses
A. Yes No Yes
B. Yes Yes Yes
C. No Yes No
D. No No Yes
E. No No No

14. Consider the following comments about absorption- and variable-costing income statements:
I.A variable-costing income statement discloses a firm's contribution margin.
II.Cost of goods sold on an absorption-costing income statement includes fixed costs.
 III.The amount of variable selling and administrative cost is the same on absorption- and
variable-costing income statements.
Which of the above statements is (are) true?
A. I only.
B. II only.
C. I and II.
D. II and III.
E. I, II, and III.

23. Income reported under absorption costing and variable costing is:
A. always the same.
B. typically different.
C. always higher under absorption costing.
D. always higher under variable costing.
E. always the same or higher under absorption costing.

24. Gomez's inventory increased during the year. On the basis of this information, income
reported under absorption costing:
A. will be the same as that reported under variable costing.
B. will be higher than that reported under variable costing.
C. will be lower than that reported under variable costing.
D. will differ from that reported under variable costing, the direction of which cannot be
determined from the information given.
E. will be less than that reported in the previous period.

25. Which of the following conditions would cause absorption-costing net income to be lower
than variable-costing net income?
A. Units sold exceeded units produced.
B. Units sold equaled units produced.
C. Units sold were less than units produced.
D. Sales prices decreased.
E. Selling expenses increased.
26. Which of the following situations would cause variable-costing net income to be lower than
absorption-costing net income?
A. Units sold equaled 39,000 and units produced equaled 42,000.
B. Units sold and units produced were both 42,000.
C. Units sold equaled 55,000 and units produced equaled 49,000.
D. Sales prices decreased by $7 per unit during the accounting period.
E. Selling expenses increased by 10% during the accounting period.
27. Consider the following statements about absorption- and variable-costing net income:
I.Yearly income reported under absorption costing will differ from income reported under
variable costing if production and sales volumes differ.
II.Long-run, total income reported under absorption costing will often be close to that reported
under variable costing.
III.Differences in income under absorption and variable costing can often be reconciled by
multiplying the change in inventory (in units) by the variable manufacturing overhead
cost per unit.

Which of the above statements is (are) true?

 A. I only.
B. II only.
C. III only.
D. I and II.
E. II and III.

28. Which of the following formulas can often reconcile the difference between absorption- and
variable-costing net income?
A. Change in inventory units x predetermined variable-overhead rate per unit.
B. Change in inventory units ÷ predetermined variable-overhead rate per unit.
C. Change in inventory units x predetermined fixed-overhead rate per unit.
D. Change in inventory units ÷ predetermined fixed-overhead rate per unit.
E. (Absorption-costing net income - variable-costing net income) x fixed-overhead rate per
unit.

31. Consider the following statements about absorption costing and variable costing:
I.Variable costing is consistent with contribution reporting and cost-volume-profit analysis.
II.Absorption costing must be used for external financial reporting.
III.A number of companies use both absorption costing and variable costing.

Which of the above statements is (are) true?

A. I only.
B. II only.
C. III only.
D. I and II.
E. I, II, and III.

32. Consider the following statements about absorption costing and variable costing:
Variable costing is consistent with contribution reporting and cost-volume-profit analysis.
I.Variable costing must be used for external financial reporting.
II.A number of companies use both absorption costing and variable costing.

Which of the above statements is (are) true?

A. I only.
B. II only.
C. III only.
D. I and II.
E. I and III.

33. For external-reporting purposes, generally accepted accounting principles require that net
income be based on:
A. absorption costing.
B. variable costing.
C. direct costing.
D. semivariable costing.
E. activity-based costing.

34. Under throughput costing, the cost of a unit typically includes:

A. selling costs.
B. fixed manufacturing overhead.
 C. the direct costs incurred whenever a unit is manufactured.
D. administrative costs.
E. all of the above.

35. Which of the following methods defines product cost as the unit-level cost incurred each time
a unit is manufactured?
A. Throughput costing.
B. Indirect costing.
C. Process costing.
D. Absorption costing.
E. Back-flush costing.

36. Orion's management recently committed to incurring direct labor and all manufacturing
overhead charges regardless of the number of units produced. Under throughput costing, the
company's cost of goods sold would include charges for:
A. selling and administrative costs.
B. direct materials.
C. direct labor and manufacturing overhead.
D. direct materials, direct labor, and manufacturing overhead.
E. direct materials, direct labor, manufacturing overhead, and selling and administrative
costs.

38. The fixed-overhead volume variance under variable costing:

A. coincides with the fixed manufacturing overhead that was applied to production.
B. is deducted on the income statement.
C. does not exist.
D. will equal the fixed-overhead budget variance.
E. must be unfavorable.

39. Which of the following differs between absorption costing and variable costing?
A. The number of units produced.
B. The fixed-overhead volume variance.
C. Sales revenues.
D. The treatment of variable manufacturing overhead.
E. Income tax rates.