I.

MULTIPLE CHOICE

1. The primary difference between variable costing and absorption costing is the treatment
of:

a. Direct materials
b. Direct labor
c. Variable manufacturing overhead
d. Fixed manufacturing overhead

2. When is the net income under absorption costing higher than net income under variable
costing?

a. Units produced exceed units sold

b. Units produced equal units sold
c. Units produced are less than units sold
d. Regardless of the relationship between units produced and units sold

3. Which cost is changed to the product under variable costing?

a. Variable manufacturing overhead

b. Fixed manufacturing overhead
c. Variable selling expenses
d. Fixed administrative expense

4. Which of the following is NOT changed to a product under absorption costing?

a. Direct materials
b. Direct labor
c. Variable manufacturing overhead
d. Fixed administrative expenses

5. Which is TRUE when units sold exceed units produced?

 a. The net income under absorption costing is higher than the net income under variable
costing.
b. The net income under absorption costing is lower than the net income under variable
costing.
c. The net income under absorption costing equals net income under variable costing.
d. The relationship between the net income of the two (2) methods cannot be predicted.

II. PROBLEM SOLVING

June Company Income Statement

(Absorption Costing)
December 201A
Sales (24,000 x P200) P 4,800,000
Less: Cost of Goods Sold (24,000 x P134) 3,216,000
Gross Profit 1,584,000
Less: Selling and Administrative Expenses
Variable Selling (24,000 x P20) P480,000
Fixed administrative 300,000 780,000
Net Income P 804,000

June Company Income Statement

(Variable Costing)
December 201A
Sales (24,000 x P200) P 4,800,000
Less: Variable Costs
Cost of Goods Sold (24,000 x P110) P 2,640,000
Selling Costs (24,000 x P20) 480,000 3,120,000
Contribution Margin 1,680,000
Less: Fixed Costs
Manufacturing Costs P 600,000
Administrative Costs 300,000 900,000
Net Income P 780,000

June Company Income Statement

(Throughput Costing)
December 201A

Sales (24,000 x P200) P 4,800,000

Less: Direct Materials (24,000 x P30) 720,000
Throughput Margin 4,080,000
Less:
Direct Labor (25,000 x P20) P 500,000
Variable Manufacturing Costs (25,000 x P30) 1,500,000
Variable Selling Expenses (24,000 x P20) 480,000
Fixed Manufacturing Costs 600,000
Fixed Administrative Expenses 300,000 P 3,380,000
Net Income P 700,000