59. Under variabk costing, which of the following are costs that can be invemoriod?

a vanane seling and adunsirntne expense

fixed selling and
and admansimtve expense

ANS: Easy OBJ: 3-6

60. Consider the following three product costing alternatives: proces costing. Job order costing, and
standard costing. Which of these can be used in conjunction with variable costing?
job oda cost ing
standard costing

all of them

ANS: D Easy OBJ:

61. Another name for variable aostingis

ul I costmg.
b. direct costing
C.standardcasung.
d. adjustable costing.
ANS: I IF: Easy OBJ: 3-6

62. Ifa fim uses variable costing. fived manufacturing oerhead will be included
a. only on the l a c e she.
ne income statement,

C. on both the bahnce shoet and income stukement.

d. on neither the bulance sheet nr income staement

DIF Easy OBI: 3-6

63. Under vanable costing.

aprouct coNs are vunae.
b. all period cOsts are viarable.
C. al prvduct casts are fixed.
d. produd costs are both fixed and variable.

ANS: A DIF: Easy DBJ: -6

64. How will a favorabe volume variance affect net income under each of the folowing methods

Ahsarptian Vxiahle

reduce 10 effect
b. reduce ncrease

increase no affect
d ncrease reduce

ANS: DIF: Easy OBJ: 3

70
65. Variabke costing considers which of the following to be prodact coss?

Fixed Fixed Variable Variable

Mige
Seling &Adn. MigCass Selling &Adm
Ye 1 Ye
b. e

es
d. yes

ANS: D DIF: Easy OB: 3-6

6. The variahle costing format is often more useful to mangers than the absorption cosing format
Cea
ause

. coss are classified by their behavior

b. costs are always lower.

d.
t eura1orexerml epartng
l jusities hwgher product prices
ANS: DIF: Easy OBJ: 3-6

67. The difrence between the reported income under absorption and variable costing b attributable to the
diflerence in ti
a . i e o m e satement lomnats.
treatment
b Iratment
ot 1ixed mamlacturing overhecad.
d.
oI vanabe manulacturing overhead.
treament of variable and admimstrative
selhng. general, expenses.
ANS: B DIF: Fasy OBJ: 3-7

68. the will vary drectly with the level of poduction'?

Which
a. ofmanufacturing
total folibwing costs
costs
b. total
period coss
C.variable penod coss
d. varable podluct coss

ANS: I Easy OBJ: 5-6

09. On the variable cOing income statement, the ditference between the "contnbulion murgin" and
Cyual to
.the toalvri NCS
b. the Cost of Goods Sold.
C.toal
d. the
Hxed cess.
gss ma
ANS: DIF Easy OBJ: 3-7

70. For tinancial reportng to the IRS and other external users, manufacturing overhend costs are

y re ncu
P are sold.
c. treated like pariod cos
d. imventaried until the related products have been completod.
ANS DIF: Easy OBJ: 3-6
. nthe upncan oarabe cosing asa cost-allacalin process in manufactunng.
va t Css are cala as period coss.
indirect manufacturing cogs are tnated cO.
C.variable p u c t Cis,

d. nonvariable drect costs are treated as product costs

ANS: IF: Easy OBJ: 3-6

2 A basic ienet of variable costing is that period costs should be currently expensed. What is the rationale
Dehind this costs
proxcarc
are uncontrolable and should not be charged to a specifc product.
b. Period c amounts to
"*gng une
* * * *

pecific products would outweieh the henet

C.Allcatian of periad costs is arbirary at bes and coukl lead to erroneos decison by
minagemenL
d. BecausC period costs wil occur whether productiom occurs, it is improper to allocate these
CONIS To production and defer a curTent cost of doing busness.

ANS: D DIF: Moderate OBJ: 3-6

73 Which of the folowing * a term more descriptive of the term "direct cosing"?
a. oul-of-ppckec
b. variable costin

Crevamcostmg
d.prime cosung
ANS: 1 DIF: Easy OBJ: 36

74. What
costs are treated as product costs under variable (diret) cosüng?
b. only variable production costs
C. all var ua ble
cos
d a l l varubk and fixed manufacturing coss

ANS: B JIF: Easy 3-6

OB
75. Which of the following must be known about a roduction process in order to institute a variable

the variabe and fixed components of all ecosts related to prodution

b. the controllable and non-controllabk components of all costs related to production
C.standard production rates and times for all elements of production
d.conributon mrgin and break-even pom for all goods m productson

ANS: A
DIF Easy OB!: 36

76 Why 1s variabe cosung not in accordance with generally accepted accounting principles?
g
b. Variable costine noedues ae n el
C. Net eamings are always overstated when using variable costing procedures
d. Vanable costing gnores the concept ot lower of cost or market when valuing iwentory.

ANS: A DIF: Easy OBI: 3-6

2
7. Which of the following is an argument against the use of direct (variable) costing?

ADsarpian costng overstles the balance sheet valc of inventones.

a e acory overheadis a period cast.
tIxCd manactunng overhead is diicut to allocate propery
d Fixed anutacturing Overead is neessary for the production of a
procuct.
ANS: D DIF: Easy OB: 3-6

78. Which of the following statements is true for a

firm that
uses
variable costing
. h e cst of a umt of product changes becaise of changes in the number of units
manufa
factured.
b. Profits thuctuate wnh sales.
ide facility variation is alulated
d.
An
Nne of the above.

ANS: B DIF: Easy OB: 3-6

79, An income statement is prepared as an internal report. Under which of the following methods would
tne term Connouton margin appear
Ahsorptioncosting Variable casting

D. yes
no
c.
d yes

ANS: B DIF: Easy OBJ 3-6

0. In an ncome statement prepured as an intemal report usSing he variable costing method, fixed
a e u n n g o v e r n e d would

b. be used in the compuation of operating income but not in the computation of the
contnbution margin.
be uwd in the computation of the contribution margn.
d. be teated the same as variable anufacturg ovahead

ANS: I B DIF: Easy OBJ: 3-7

81. Vanable costng has an advantage over absorption costing l r which o the tolowing purposes

a e oaionshin
the CVP relationship amone
among the major factors of selling price, sales mix, and
sales volume
minimizng the effectsof inveniory changes on net mcom
dall of the above

ANS: D DIF: Easy OBJ 5-6

82. In the variable costing income statement, which line separates the variable and fixed costs?

heneral and administrative expense

C. product contnbutim margn
d. total comnbuon
mmarg
ANS: Easy OB

75
83. A frm presently has total sales of S 10,000. If its sales rise, its
. net income based on variable cosung will go up more than its net income based on
absorption costing
net income based on absorption costing will go up more than its nd income based on
variable cosng
ko n
d. ariablk
per una variable conts will
costs will rise. rise.
DIF: Moderate 3-7
ANS OB
Langley Corporation

Langley Corporation has the following standard costs associatcd with the manufacture and sale of one
sproNIUcts.

Direct material S3.00 per unit

Direct labor 2.50 per unit
1.80 per unit
Variable manufacturing overhead
Fixed manutacturing overhead 4,00 per unit (based on an estimate
of 50,00 unils per year)
Variable seling expenses p e r usnit
FIxcd SidA eNpeie S75,000 per year

During its first year of operations lLangley manufactured 51.000 units and sold 48,000. The
selling price per unit was $25. All costs were equal to standard.

84. Refer to Langley Corporation. Under absorption costing. the standard production cost per unit for the

b. $7.30,
S11.55.
d S13.05.

ANS +DL VFOH +FFOH Standard Cst per Unit

DM + =

S3.00 +S250 +S1.80t S4.00=S1.S0

DIF: Easy OB: 3-7

85. Refer to Langley Coporaion. The volume variance under absrption costing is
o00
b. S4.000 F

c. S4.000 .
d S8,000 U

ANS: B

1.000 favorable units productionvariance S4.00 fised factory overhead=$4.000 E_

DIF: Moderate OBJ: 3-7

74
86, Refer to Langley Corporation. Under variable costing. the sandard production cost per unit for the
Current ye was

SI1.55.

ANS:

DM+DL+ VOH= Standard Production Cost per Unit

LS3.00+ S2.S0 + S1.8O= S7.30
DIF: Easy OBJ: 3-7

87. Reler to Langley Corporatkon. Based on variable costing. the income bfore income Laxes for the year

570,600.
b.S560,000
c. S562,600.
d S547,500.

ANS:
Sales:- SL20,000
Variable ENpenses
Contribution Margm 837,600
FixcdExpenses
Overhead 20,000

Net IncomC 62.600

DIF: Moderate OB: 3-7

75
 Ford Company

The following information is available for Ford Company for its first year of
operations
Sales
roh im n n units
nits 5,000
8,003
Manufacturing costs:
Direct labor 53 per unit
Direct material per urnit
Variable overhead I per uwnit
Fixed overhead S100,00
Net ncome (absorpticn method)
Sales price per unit
S30,000
40

88. Refer to Ford Company. If Ford Company had used variable costing, what amount of income before
income taxes would it have reported?
S30,000
D.

cant be detemind from the information given

ANS:

NeE incomCADSorpuon Costing S 30,000

FINGdOHin Ending lnventor
STO0,OGE (5,0008,DU0)
e L0S- varabe COsting

DIF: Moderate OB: 3-7

89. Refer to Ford Company. What was the lotal amount of Selling. Greneral and Administrative expense

incurred by Ford Company?

hS6 500
c. S6,000
d. cant be detemind fom the infomation gven

ANS
Sales 200,0000
COGS
Gross Profit
SG&A
Net Incomne
X=S62,500

DIF: Moderate OBJ: 3-7

76
. Refer to Ford Company. If Ford Company were using variable costing what would it show as the

valueSI20,000
of ending inventory
b.
500
S27,000
d $24,000

ANS: C_
LB,000 units* S9.00'unit=$27,000
DIF: Fasy OB): 3-7

Clinton Corporation

The following information has been extractod from the financial records of Clinton Corporation for its
irst year of
operations
Units produced 10,000
Units sold
7,000
Variable costs per
un
Direct material
Direct labor
Manufacturing overhecad
A

Manufacturing overhead $70.00

30,000

9Reler to Clinton Carporation. Based on absorption costing. Clinton Caporation's income in its firs
will be
ycar ot operations
a. $21,0O0 higher than it would be under variable costing.

b.S000 higher thanit would be

S30,0OO hagher than
under vanable costing.
C. beit
would under variable costing
d. higher than it would be under variable costing. but the exact diterence cannot be
determined from the information
given
ANS: AA
L3,000 unsold units" $7.00 fixed overheadunit =$21.000 higher under absorption costing
DIF: Moderate OBJ: 3-7

77