ABSORPTION AND VARIABLE COSTING

QUIZ #1
1. In a recent period, Marvel Co. incurred $20,000 of fixed manufacturing overhead and deducted $30,000
of fixed manufacturing overhead. Marvel Co. must be using

a. absorption costing*
b. variable costing
c. direct costing
d. standard costing

2. If a firm produces more units than it sells, absorption costing, relative to variable costing, will result in

a. higher income and assets*

b. higher income but lower assets
c. lower income but higher assets
d. lower income and assets

3. Under absorption costing, fixed manufacturing overhead could be found in all of the following except
the

a. work-in-process account
b. finished goods inventory account
c. Cost of Goods Sold
d. period costs*

4. If a firm uses absorption costing, fixed manufacturing overhead will be included

a. only on the balance sheet

b. only on the income statement
c. on both the balance sheet and income statement*
d. on neither the balance sheet nor income statement

5. The following unit costs for the production of laser guns were based on expected capacity in the coming
period:

Direct materials ................................................................................................................... $4

Direct labor............................................................................................................................. 7
Variable overhead................................................................................................................ 2
Fixed overhead ..................................................................................................................... 5
Variable marketing and administrative expenses .................................................... 6
Fixed marketing and administrative expenses ........................................................ 4

Under variable costing method, these units are recorded in inventory at a cost of:

a. $11 c. $18
b. $13* d. $19

NICOLE ANNE S. SIBULO | 1-BSA 1

 SUPPORTING CALCULATION:
Direct materials $4
Direct labor $7
Variable overhead $2
$13
6. A company had income of $50,000 using variable costing for a given period. Beginning and ending
inventories for that period were 13,000 units and 18,000 units, respectively. Ignoring income taxes, if
the fixed overhead application rate were $2.00 per unit, what would the income have been using
absorption costing?

a. $86,000
b. $40,000
c. $50,000
d. $60,000*

SUPPORTING CALCULATION:

$50,000 + $2 ( 18,000 - 13,000 ) = $60,000

7. A company manufactures 50,000 units of a product and sells 40,000 units. Total manufacturing cost per
unit is $50 (variable manufacturing cost, $10; fixed manufacturing cost, $40). Assuming no beginning
inventory, the effect on net income if absorption costing is used instead of variable costing is that:

NICOLE ANNE S. SIBULO | 1-BSA 2