Variable costs are costs that:

(a) vary in total directly and proportionately with changes in the activity level.

(b) remain the same per unit at every activity level.

(c) Neither of the above.

(d) Both (a) and (b) above.

The relevant range is:

(a) the range of activity in which variable costs will be curvilinear.

(b) the range of activity in which fi xed costs will be curvilinear.

(c) the range over which the company expects to operate during a year.

(d) usually from zero to 100% of operating capacity.

Mixed costs consist of a

: (a) variable-cost element and a fi xed-cost element.

(b) fi xed-cost element and a controllable-cost element.

(c) relevant-cost element and a controllable-cost element.

(d) variable-cost element and a relevant-cost element

Your phone service provider offers a plan that is classifi ed as a mixed cost. The cost per
month for 1,000 minutes is $50. If you use 2,000 minutes this month, your cost will be:

(a) $50.

. (b) $100.

c) more than $100

(d) between $50 and $100

5. Kendra Corporation’s total utility costs during the past year were $1,200 during its highest
month and $600 during its lowest month. These costs corresponded with 10,000 units of
production during the high month and 2,000 units during the low month. What are the fi xed
and variable components of its utility costs using the high-low method?

(a) $0.075 variable and $450 fi xed.

(b) $0.120 variable and $0 fi xed.

(c) $0.300 variable and $0 fi xed.

(d) $0.060 variable and $600 fi xed

Which of the following is not involved in CVP analysis?

(a) Sales mix.

(b) Unit selling prices.

(c) Fixed costs per unit.

(d) Volume or level of activity

When comparing a traditional income statement to a CVP income statement:

(a) net income will always be greater on the traditional statement.

(b) net income will always be less on the traditional statement.

(c) net income will always be identical on both.

(d) net income will be greater or less depending on the sales volume.

Contribution margin:

(a) is revenue remaining after deducting variable costs.

(b) may be expressed as contribution margin per unit.

(c) is selling price less cost of goods sold.

(d) Both (a) and (b) above

Cournot Company sells 100,000 wrenches for $12 a unit. Fixed costs are $300,000, and net
income is $200,000. What should be reported as variable expenses in the CVP income
statement?

(a) $700,000. (c) $500,000. (b) $900,000. (d) $1,000,000

Gossen Company is planning to sell 200,000 pliers for $4 per unit. The contribution margin
ratio is 25%. If Gossen will break even at this level of sales, what are the fi xed costs?

(a) $100,000. (c) $200,000. (b) $160,000. (d) $300,000

Brownstone Company's contribution margin ratio is 30%. If Brownstone's salesrevenue is $1

00 greater than its break-even sales in dollars, its net income:
(a) will be $100.
(b) will be $70.
(c)will be $30.
(d) cannot be determined without knowing fixed costs.
. 12. The mathematical equation for computing required sales to obtain target net income is:
Required sales 5
(a) Variable costs 1 Target net income.
(b) Variable costs 1 Fixed costs 1 Target net income.
(c) Fixed costs 1 Target net income.
(d) No correct answer is given.

Margin of safety is computed as:

(a) Actual sales 2 Break-even sales.

(b) Contribution margin 2 Fixed costs.

(c) Break-even sales 2 Variable costs.

(d) Actual sales 2 Contribution margin

Marshall Company had actual sales of $600,000 when break-even sales were $420,000.
What is the margin of safety ratio?

(a) 25%. (c) 331 ⁄ 3%. (b) 30%. (d) 45%

1. d 2. c 3. a 4. d 5. a [($1,200 2 $600) 4 (10,000 2 2,000)] 6. c 7. c 8. d 9. a [(100,000 3 $12) 2

$300,000 2 $200,000] 10. c (200,000 3 $4 3 25%) 11. c ($100 3 30%) 12. b 13. a 14. b
[($600,000 2 $420,000) 4 $600,000]

7 Incremental Analysis
1. Three of the steps in management’s decision-making process are (1) review results of
decision, (2) determine and evaluate possible courses of action, and (3) make the decision.
The steps are prepared in the following order:

(a) (1), (2), (3) . (c) (2), (1), (3).

(b) (3), (2), (1) . (d) (2), (3), (1).

2. Incremental analysis is the process of identifying the fi nancial data that:

(a) do not change under alternative courses of action.

(b) change under alternative courses of action.

(c) are mixed under alternative courses of action.

(d) No correct answer is given.

In making business decisions, management ordinarily considers:

(a) quantitative factors but not qualitative factors.

(b) fi nancial information only.

(c) both fi nancial and nonfi nancial information.

(d) relevant costs, opportunity cost, and sunk costs

. A company is considering the following alternatives: Alternative A Alternative B Revenues

$50,000 $50,000 Variable costs 24,000 24,000 Fixed costs 12,000 15,000 Which of the
following are relevant in choosing between these alternatives?

(a) Revenues, variable costs, and fi xed costs.

(b) Variable costs and fi xed costs

. (c) Variable costs only. (

d) Fixed costs only

5. It costs a company $14 of variable costs and $6 of fi xed costs to produce product Z200
that sells for $30. A foreign buyer offers to purchase 3,000 units at $18 each. If the special
offer is accepted and produced with unused capacity, net income will:

(a) decrease $6,000. (c) increase $12,000. (b) increase $6,000. (d) increase $9,000

6. It costs a company $14 of variable costs and $6 of fi xed costs to produce product Z200.
Product Z200 sells for $30. A buyer offers to purchase 3,000 units at $18 each. The seller will
incur special shipping costs of $5 per unit. If the special offer is accepted and produced with
unused capacity, net income will

: (a) increase $3,000. (c) decrease $12,000. (b) increase $12,000. (d) decrease $3,000

7. Jobart Company is currently operating at full capacity. It is considering buying a part from
an outside supplier rather than making it in-house. If Jobart purchases the part, it can use
the released productive capacity to generate additional income of $30,000 from producing a
different product. When conducting incremental analysis in this make-or-buy decision, the
company should:

(a) ignore the $30,000.

(b) add $30,000 to other costs in the “Make” column..

(c) add $30,000 to other costs in the “Buy” column.

(d) subtract $30,000 from the other costs in the “Make” column

8. In a make-or-buy decision, relevant costs are:

(a) manufacturing costs that will be saved.

(b) the purchase price of the units.

(c) the opportunity cost.

(d) All of the above

Derek is performing incremental analysis in a make-or-buy decision for Item X. If Derek buys
Item X, he can use its released productive capacity to produce Item Z. Derek will sell Item Z
for $12,000 and incur production costs of $8,000. Derek’s incremental analysis should
include an opportunity cost of:

(a) $12,000. (c) $4,000. (b) $8,000. (d) $0

10. The decision rule in a sell-or-process-further decision is: process further as long as the
incremental revenue from processing exceeds

: (a) incremental processing costs.

(b) variable processing costs.

(c) fi xed processing costs.

(d) No correct answer is given

11. Walton, Inc. makes an unassembled product that it currently sells for $55. Production
costs are $20. Walton is considering assembling the product and selling it for $68. The cost
to assemble the product is estimated at $12. What decision should Walton make?

(a) Sell before assembly; net income per unit will be $12 greater.

(b) Sell before assembly; net income per unit will be $1 greater.

(c) Process further; net income per unit will be $13 greater.

(d) Process further; net income per unit will be $1 greater

12. In a decision to retain or replace equipment, the book value of the old equipment is a
(an)

: (a) opportunity cost. (c) incremental cost. (b) sunk cost. (d) marginal cost

13. If an unprofi table segment is eliminated: (

a) net income will always increase.

(b) variable expenses of the eliminated segment will have to be absorbed by other
segments.
(c) fi xed expenses allocated to the eliminated segment will have to be absorbed by other
segments.

(d) net income will always decrease.

14. A segment of Hazard Inc. has the following data. Sales $200,000 Variable expenses
140,000 Fixed expenses 100,000 If this segment is eliminated, what will be the effect on the
remaining company? Assume that 50% of the fi xed expenses will be eliminated and the rest
will be allocated to the segments of the remaining company.

(a) $120,000 increase

. (c) $50,000 increase

. (b) $10,000 decrease.

(d) $10,000 increase.

Pricing
1. Target cost related to price and profi t means that:

(a) cost and desired profi t must be determined before selling price.

(b) cost and selling price must be determined before desired profi t.

(c) price and desired profi t must be determined before costs.

(d) costs can be achieved only if the company is at full capacity

2. Classic Toys has examined the market for toy train locomotives. It believes there is a
market niche in which it can sell locomotives at $80 each. It estimates that it could sell
10,000 of these locomotives annually. Variable costs to make a locomotive are expected to
be $25. Classic anticipates a profi t of $15 per locomotive. The target cost for the locomotive
is:

(a) $80. (c) $40. (b) $65. (d) $25.

3. In a competitive, common-product environment, a seller would most likely use:

(a) time-and-material pricing.

(b) variable costing.

(c) target costing

. (d) cost-plus pricing.

4. Cost-plus pricing means that:

(a) Selling price 5 Variable cost 1 (Markup percentage 1 Variable cost).

(b) Selling price 5 Cost 1 (Markup percentage 3 Cost)

. (c) Selling price 5 Manufacturing cost 1 (Markup percentage 1 Manufacturing cost).

(d) Selling price 5 Fixed cost 1 (Markup percentage 3 Fixed cost).

5. Adler Company is considering developing a new product. The company has gathered the
following information on this product. Expected total unit cost $25 Estimated investment for
new product $500,000 Desired ROI 10% Expected number of units to be produced and sold
1,000 Given this information, the desired markup percentage and selling price are:

(a) markup percentage 10%; selling price $55.

(b) markup percentage 200%; selling price $75.

(c) markup percentage 10%; selling price $50.

(d) markup percentage 100%; selling price $55.

6. Mystique Co. provides the following information for the new product it recently
introduced. Total unit cost $30 Desired ROI per unit $10 Target selling price $40 What would
be Mystique Co.’s percentage markup on cost?

(a) 125%. (c) 33%. (b) 75%. (d) 25%.

7. Crescent Electrical Repair has decided to price its work on a time-and-material basis. It
estimates the following costs for the year related to labor. Technician wages and benefi ts
$100,000 Offi ce employee’s salary and benefi ts $ 40,000 Other overhead $ 80,000 Crescent
desires a profi t margin of $10 per labor hour and budgets 5,000 hours of repair time for the
year. The offi ce employee’s salary, benefi ts, and other overhead costs should be divided
evenly between time charges and material loading charges. Crescent labor charge per hour
would be

: (a) $42. (c) $32. (b) $34. (d) $30

8. Time-and-material pricing would most likely be used by a

: (a) garden-fertilizer producer

. (b) lawn-mower manufacturer.

(c) tree farm.

(d) lawn-care provider

9. The Plastics Division of Weston Company manufactures plastic molds and then sells them
to customers for $70 per unit. Its variable cost is $30 per unit, and its fi xed cost per unit is
$10. Management would like the Plastics Division to transfer 10,000 of these molds to
another division within the company at a price of $40. The Plastics Division is operating at
full capacity. What is the minimum transfer price that the Plastics Division should accept?

(a) $10. (c) $40. (b) $30. (d) $70.

10. Assume the same information as Question 9, except that the Plastics Division has
available capacity of 10,000 units for plastic moldings. What is the minimum transfer price
that the Plastics Division should accept?

(a) $10. (c) $40. (b) $30. (d) $70.

11. The most common method used to establish transfer prices is the:

(a) negotiated transfer pricing approach.

(b) opportunity costing transfer pricing approach.

(c) cost-based transfer pricing approach.

(d) market-based transfer pricing approach

12. When a company uses time-and-material pricing, the material loading charge is
expressed as a percentage of:

(a) the total estimated labor costs for the year.

(b) the total estimated costs of parts and materials for the year.

(c) the total estimated overhead costs for the year.

(d) the total estimated costs of parts, materials, and labor for the year

13. Global Industries transfers parts between divisions in two countries, Eastland and
Westland. Eastland’s tax rate is 8%, and Westland’s tax rate is 16%. To minimize tax
payments and maximize net income, Global should establish transfer prices that

: (a) allocate contribution margin equally between Eastland and Westland

. (b) allocate more contribution margin to Eastland.

(c) allocate more contribution margin to Westland.

(d) allocate half as much contribution margin to Eastland as it does to Westland.

*14. AST Electrical provides the following cost information related to its production of
electronic circuit boards. Per Unit Variable manufacturing cost $40 Fixed manufacturing cost
$30 Variable selling and adminis- trative expenses $ 8 Fixed selling and administrative
expenses $12 Desired ROI per unit $15 What is its markup percentage assuming that AST
Electrical uses absorption-cost pricing?

(a) 16.67%. (c) 54.28%. (b) 50%. (d) 118.75%

Assume the same information as question 14 and determine AST Electrical’s markup
percentage using variable-cost pricing.

(a) 16.67%. (c) 54.28%. (b) 50%. (d) 118.75%.

Budgetary Planning
1. Which of the following is not a benefi t of budgeting?

(a) Management can plan ahead.

(b) An early warning system is provided for potential problems.

(c) It enables disciplinary action to be taken at every level of responsibility

. (d) The coordination of activities is facilitated

. 2. A budget:

(a) is the responsibility of management accountants.

(b) is the primary method of communicating agreedupon objectives throughout an

organization

. (c) ignores past performance because it represents management’s plans for a future time
period.

(d) may promote effi ciency but has no role in evaluating performance

3. The essentials of effective budgeting do not include:

(a) top-down budgeting.

(b) management acceptance.

(c) research and analysis

. (d) sound organizational structure.

4. Compared to budgeting, long-range planning generally has the:

(a) same amount of detail.

(b) longer time period

. (c) same emphasis.

(d) same time period

. 5. A sales budget is:

(a) derived from the production budget.

(b) management’s best estimate of sales revenue for the year.

(c) not the starting point for the master budget.

(d) prepared only for credit sales.

6. The formula for the production budget is budgeted sales in units plus:

(a) desired ending merchandise inventory less beginning merchandise inventory.

(b) beginning fi nished goods units less desired ending fi nished goods units.

(c) desired ending direct materials units less beginning direct materials units.

(d) desired ending fi nished goods units less beginning fi nished goods units.

7. Direct materials inventories are kept in pounds in Byrd Company, and the total pounds of
direct materials needed for production is 9,500. If the beginning inventory is 1,000 pounds
and the desired ending inventory is 2,200 pounds, the total pounds to be purchased is

: (a) 9,400. (c) 9,700. (b) 9,500. (d) 10,700.

8. The formula for computing the direct labor budget is to multiply the direct labor cost per
hour by the:

(a) total required direct labor hours.

(b) physical units to be produced.

(c) equivalent units to be produced.

(d) No correct answer is given.

9. Each of the following budgets is used in preparing the budgeted income statement except
the:

(a) sales budget.

(b) selling and administrative budget.

(c) capital expenditure budget.

(d) direct labor budget.

10. The budgeted income statement is

: (a) the end-product of the operating budgets.

(b) the end-product of the fi nancial budgets.

(c) the starting point of the master budget.

(d) dependent on cash receipts and cash disbursements.

11. The budgeted balance sheet is:.

(a) developed from the budgeted balance sheet for the preceding year and the budgets
for the current year.

(b) the last operating budget prepared.

(c) used to prepare the cash budget.

(d) All of the above

12. The format of a cash budget is

: (a) Beginning cash balance 1 Cash receipts 1 Cash from fi nancing 2 Cash disbursements 5
Ending cash balance.

(b) Beginning cash balance 1 Cash receipts 2 Cash disbursements 1/2 Financing 5 Ending
cash balance.

(c) Beginning cash balance 1 Net income 2 Cash dividends 5 Ending cash balance.

(d) Beginning cash balance 1 Cash revenues 2 Cash expenses 5 Ending cash balance.

13. Expected direct materials purchases in Read Company are $70,000 in the fi rst quarter
and $90,000 in the second quarter. Forty percent of the purchases are paid in cash as
incurred, and the balance is paid in the following quarter. The budgeted cash payments for
purchases in the second quarter are:

(a) $96,000. (c) $78,000. (b) $90,000. (d) $72,000.

14. The budget for a merchandiser differs from a budget for a manufacturer because:

(a) a merchandise purchases budget replaces the production budget.

(b) the manufacturing budgets are not applicable.

(c) None of the above

. (d) Both (a) and (b) above.

15. In most cases, not-for-profi t entities:

(a) prepare budgets using the same steps as those used by profi t-oriented businesses.

(b) know budgeted cash receipts at the beginning of a time period, so they budget only for
expenditures.

(c) begin the budgeting process by budgeting expenditures rather than receipts

. (d) can ignore budgets because they are not expected to generate net income.
Managerial accountin:
1. Managerial accountin:

(a) is governed by generally accepted accounting principles.

(b) places emphasis on special-purpose information.

(c) pertains to the entity as a whole and is highly aggregated.

(d) is limited to cost data.

2. The management of an organization performs several broad functions. They are:

(a) planning, directing, and selling.

(b) planning, directing, and controlling.

(c) planning, manufacturing, and controlling.

(d) directing, manufacturing, and controlling.

3. After passage of the Sarbanes-Oxley Act:

(a) reports prepared by managerial accountants must by audited by CPAs

(b) CEOs and CFOs must certify that fi nancial statements give a fair presentation of the
company’s operating results.

(c) the audit committee, rather than top management, is responsible for the company’s fi
nancial statements.

(d) reports prepared by managerial accountants must comply with generally accepted
accounting principles (GAAP).

4. Direct materials are a: Product Manufacturing Period Cost Overhead Cost

(a) Yes Yes No (b) Yes No No (c) Yes Yes Yes (d) No No No

5. Which of the following costs would a computer manufacturer include in manufacturing

overhead?

(a) The cost of the disk drives.

(b) The wages earned by computer assemblers.

(c) The cost of the memory chips.

(d) Depreciation on testing equipment.

6. Which of the following is not an element of manufacturing overhead?

(a) Sales manager’s salary.

(b) Plant manager’s salary.

(c) Factory repairman’s wages.

(d) Product inspector’s salary.

7. Indirect labor is a:

(a) nonmanufacturing cost.

(b) raw material cost. (c) product cost. (d) period cost.

8. Which of the following costs are classifi ed as a period cost?

(a) Wages paid to a factory custodian.

(b) Wages paid to a production department super visor.

(c) Wages paid to a cost accounting department supervisor.

(d) Wages paid to an assembly worker.

9. For the year, Redder Company has cost of goods manufactured of $600,000, beginning fi
nished goods inventory of $200,000, and ending fi nished goods inventory of $250,000. The
cost of goods sold is

: (a) $450,000. (b) $500,000. (c) $550,000. (d) $600,000.

10. Cost of goods available for sale is a step in the calculation of cost of goods sold of:

(a) a merchandising company but not a manufacturing company.

(b) a manufacturing company but not a merchandising company.

(c) a merchandising company and a manufacturing company.

(d) neither a manufacturing company nor a merchandising company.

11. A cost of goods manufactured schedule shows beginning and ending inventories for:

(a) raw materials and work in process only.

(b) work in process only.

(c) raw materials only.

(d) raw materials, work in process, and fi nished goods

. 12. The formula to determine the cost of goods manufactured is:

(a) Beginning raw materials inventory 1 Total manufacturing costs 2 Ending work in process
inventory
(b) Beginning work in process inventory 1 Total manufacturing costs 2 Ending fi nished goods
inventory.

(c) Beginning fi nished good inventory 1 Total manufacturing costs 2 Ending fi nished goods
inventory.

(d) Beginning work in process inventory 1 Total manufacturing costs 2 Ending work in
process inventory

. 13. A manufacturer may report three inventories on its balance sheet: (1) raw materials, (2)
work in process, and (3) fi nished goods. Indicate in what sequence these inventories
generally appear on a balance sheet.

(a) (1), (2), (3) (b) (2), (3), (1) (c) (3), (1), (2) (d) (3), (2), (1)

14. Which of the following managerial accounting techniques attempts to allocate

manufacturing overhead in a more meaningful fashion?

(a) Just-in-time inventory.

(b) Total quality management

. (c) Balanced scorecard.

(d) Activity-based costing

. 15. Corporate social responsibility refers to:

(a) the practice by management of reviewing all business processes in an effort to increase
productivity and eliminate waste.

(b) an approach used to allocate overhead based on each product’s use of activities.

(c) the attempt by management to identify and eliminate constraints within the value chain.
(d) efforts by companies to employ sustainable business practices with regard to
employees and the environment.

Ch 6
1. d 2. D 3. a 4 a ($350,000 2 $100,000) 5. b [($180,000 1 $268,000) 4 ($12 2 $8.50)] 6. d
[$150,000 4 ($3 4 $12)] 7. d 8 . a 9. b ($15 4 3.0) 10. d [($26 4 4) , ($14 4 2)] 11. d 12. d
13. c 14. a ($200,000 * 3.5 * 10%) *15. b *16. C

1. Which one of the following is the format of a CVP income statement?

(a) Sales 2 Variable costs 5 Fixed costs 1 Net income. (b) Sales 2 Fixed costs 2 Variable costs
2 Operating expenses 5 Net income

. (c) Sales 2 Cost of goods sold 2 Operating expenses 5 Net income.

(d) Sales 2 Variable costs 2 Fixed costs 5 Net income.

2. Croc Catchers calculates its contribution margin to be less than zero. Which statement is
true?

(a) Its fi xed costs are less than the variable costs per unit.

(b) Its profi ts are greater than its total costs

. (c) The company should sell more units.

(d) Its selling price is less than its variable costs.

3. Which one of the following describes the break-even point?

(a) It is the point where total sales equals total variable plus total fi xed costs.

(b) It is the point where the contribution margin equals zero.

(c) It is the point where total variable costs equal total fi xed costs.

(d) It is the point where total sales equals total fi xed costs.

4. The following information is available for Chap Company. Sales $350,000 Cost of goods
sold $120,000 Total fi xed expenses $60,000 Total variable expenses $100,000 Which
amount would you fi nd on Chap’s CVP income statement?

(a) Contribution margin of $250,000.

(b) Contribution margin of $190,000.

(c) Gross profi t of $230,000.

(d) Gross profi t of $190,000.

5. Gabriel Corporation has fi xed costs of $180,000 and variable costs of $8.50 per unit. It has
a target income of $268,000. How many units must it sell at $12 per unit to achieve its target
net income?

(a) 51,429 units. (c) 76,571 units. (b) 128,000 units. (d) 21,176 units.

6. Mackey Corporation has fi xed costs of $150,000 and variable costs of $9 per unit. If sales
price per unit is $12, what is break-even sales in dollars?

(a) $200,000. (c) $480,000. (b) $450,000. (d) $600,000.

7. Sales mix is:

(a) important to sales managers but not to accountants.

(b) easier to analyze on absorption costing income statements.

(c) a measure of the relative percentage of a company’s variable costs to its fi xed costs.

(d) a measure of the relative percentage in which a company’s products are sold.
8. Net income will be

: (a) greater if more higher-contribution margin units are sold than lower-contribution
margin units.

(b) greater if more lower-contribution margin units are sold than higher-contribution margin
units

. (c) equal as long as total sales remain equal, regardless of which products are sold

. (d) unaffected by changes in the mix of products sold.

9. If the contribution margin per unit is $15 and it takes 3.0 machine hours to produce the
unit, the contribution margin per unit of limited resource is:

(a) $25. (c) $4. (b) $5. (d) None of the above.

10. MEM manufactures two products. Product X has a contribution margin of $26 and
requires 4 hours of machine time. Product Y has a contribution margin of $14 and requires 2
hours of machine time. Assuming that machine time is limited to 3,000 hours, how should it
allocate the machine time to maximize its income?

(a) Use 1,500 hours to produce X and 1,500 hours to produce Y.

(b) Use 2,250 hours to produce X and 750 hours to produce Y.

(c) Use 3,000 hours to produce only X.

(d) Use 3,000 hours to produce only Y

. 11. When a company has a limited resource, it should apply additional capacity of that
resource to providing more units of the product or service that has:

(a) the highest contribution margin. (b) the highest selling price. (c) the highest gross profi t.
(d) the highest contribution margin per unit of that limited resource.

12. The degree of operating leverage:

(a) can be computed by dividing total contribution margin by net income.

(b) provides a measure of the company’s earnings volatility

. (c) affects a company’s break-even point.

(d) All of the above.

13. A high degree of operating leverage:

(a) indicates that a company has a larger percentage of variable costs relative to its fi xed
costs.

(b) is computed by dividing fi xed costs by contribution margin.

(c) exposes a company to greater earnings volatility risk.

(d) exposes a company to less earnings volatility risk.

14. Stevens Company has a degree of operating leverage of 3.5 at a sales level of $1,200,000
and net income of $200,000. If Stevens’ sales fall by 10%, Stevens can be expected to
experience a

: (a) decrease in net income of $70,000. (b) decrease in contribution margin of $7,000. (c)
decrease in operating leverage of 35% . (d) decrease in net income of $175,000.

*15. Fixed manufacturing overhead costs are recognized as:

(a) period costs under absorption costing. (b) product costs under absorption costs

. (c) product costs under variable costing. (d) part of ending inventory costs under both
absorption and variable costing.

*16. Net income computed under absorption costing will be:

(a) higher than net income under variable costing in all cases

. (b) equal to net income under variable costing in all cases.

(c) higher than net income under variable costing when units produced are greater than
units sold.

(d) higher than net income under variable costing when units produced are less than units
sold.