VARIABLE and ABSORPTION COSTING MULTIPLE

CHOICE

1. Using absorption costing, a unit of product includes which costs?

a. Direct materials, direct labor, fixed overhead

b. Direct materials, direct labor, variable overhead
c. Direct materials, direct labor, variable overhead, fixed overhead
d. Only direct materials and direct labor

2. Using variable costing, a unit of product includes which costs?

a. Direct materials, direct labor, fixed overhead

b. Direct materials, direct labor, variable overhead
c. Direct materials, direct labor, variable overhead, fixed overhead
d. Only direct materials and direct labor

3. Variable costing is also known as:

a. Indirect costing
b. Direct costing
c. Marginal costing
d. Both (2) and (3)

4. Using the following data, determine the unit product cost under absorption costing.

a. $11
b. $12
c. $14
d. $15
5. Using the following data, determine the unit product cost under variable costing.

a. $11
b. $12
c. $14
d. $15

6. The difference between the unit product cost under absorption costing as compared to variable
costing is:

a. Direct materials and direct labor

b. Fixed and variable portions of manufacturing overhead
c. Fixed manufacturing overhead only
d. Variable manufacturing overhead only

7. Variable costing is attractive to managers as an alternative to absorption costing because:

a. Absorption costing distinguishes between fixed and variable product costs

b. Absorption costing is well suited to CVP analysis techniques
c. Absorption costing provides useful tools to managers for planning and control
d. To generate data for CVP analysis, considerable time need to be invested to rework income
statements constructed under absorption costing

8. Product cost under absorption costing is characteristically:

a. Higher than under variable costing

b. Lower than under variable costing
c. Equal to variable costing
d. Sometimes higher and sometimes lower than variable costing
9. When production is equal to sales, which of the following is true?

a. No change occurs in inventories for either absorption costing or variable costing

b. The use of absorption costing produces a higher net income than the use of variable costing
c. The use of absorption costing produces a lower net income than the use of variable costing
d. The use of absorption costing causes the inventory value to increase more than it would through
the use of variable costing

10. When production is greater than sales, which of the following is true?

a. No change occurs in inventories for either absorption costing or variable costing

b. The use of absorption costing produces a higher net income than the use of variable costing
c. The use of absorption costing produces a lower net income than the use of the variable costing
d. The use of absorption costing causes the inventory value to increase more than it would through
the use of variable costing

ANSWER:
1. C.
2. B.
3. D.
4. C.
5. A
6. C
7. D.
8. A.
9. A.
10. B.