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d. Fixed manufacturing costs
Which of the following is a product cost under absorption costing but not under variable costing?
a. Variable marketing costs
b. Variable manufacturing costs
c. Fixed marketing costs
d. Fixed manufacturing costs
d. Indirect product costs
Under absorption costing, fixed manufacturing overhead costs are best described as
a. Direct period costs
b. Indirect period costs
c. Direct product costs
d. Indirect product costs
d. All product costs are variable
Under variable costing,
a. All period costs are fixed
b. All product costs are fixed
c. All period costs are variable
d. All product costs are variable
a. Lower
As compared to absorption costing, inventory cost under variable costing is typically
a. Lower
b. Higher
c. The same
d. The same or lower in certain cases
b. Higher than variable costing profit
If production is higher than sales, then absorption costing profit is expected to be
a. Lower than variable costing profit
b. Higher than variable costing profit
c. Equal to the variable costing profit
d. Incomparable with variable costing profit
d. Buyer's profit objective
Product pricing is generally influenced by the following factors, except:
a. Competition
b. Consumer demand
c. Seller's cost structure
d. Buyer's profit objective
d. Determine market price, calculate target cost, and use value engineering to reduce costs
Which one of the following best represents the steps followed in target costing?
a. Use value engineering and kaizen costing to reduce costs, and determine desired price
b. Use kaizen costing to reduce costs, determine desired mark-up, and set the market price
c. Use value engineering to reduce costs, calculate target costs, and set the desired price
d. Determine market price, calculate target cost, and use value engineering to reduce costs
d. The cost base is made up of the variable costs associated with the product
When using the absorption approach to cost-plus pricing,
a. All costs are included in the cost base.
b. The cost base is made up of the unit manufacturing costs.
c. The “plus” or markup figure contains fixed costs and desired profit.
d. The cost base is made up of the variable costs associated with the product
d. Seasonal discounts
What price adjustment strategy is usually designed to stabilize production for the selling firm?
a. Cash discounts
b. Quantity discounts
c. Functional discounts
d. Seasonal discounts
c. Equal to that of variable costing
Under a just-in-time (JIT) production environment, profit under absorption costing tends to be
a. Higher than that of variable costing
b. Lower than that of variable costing
c. Equal to that of variable costing
d. Not equal to that of variable costing
a. (A) sales (B) production
Variable costing profit fluctuates with (A) ____ and does not react to changes in (B) ____.
a. (A) sales (B) production
b. (A) production (B) sales
c. (A) sales (B) demand
d. (A) production (B) supply
a. Inflate income
When managers produce more units than can be sold, full costing can
a. Inflate income
b. Increase unit costs
c. Deflate income
d. Decrease taxes
a. Financial reporting
Variable costing is unacceptable for
a. Financial reporting
b. Transfer pricing
c. Cost-volume-profit analysis
d. Short-term decision making
c. Variable costing
What is the costing method that treats all fixed costs as period costs?
a. Absorption costing
b. Job-order costing
c. Variable costing
d. Process costing
b. Absorption costing
Which method of inventory costing treats direct manufacturing costs and manufacturing overhead costs, both variableand fixed, as inventoriable costs?
a. Conversion costing
b. Absorption costing
c. Variable costing
d. Direct costing
d. Period costs will occur whether or not production occurs and so it is improper to allocate these costs to production and defer a current cost of doing business
A basic tenet of direct costing is that period costs should be currently expensed. What is the rationale behind this?
a. Period costs are uncontrollable and should not be charged to a specific product
b. Allocation of period costs is arbitrary at best and could lead to erroneous decisions by management
c. Period costs are generally immaterial in amount and the cost of assigning the amount to specific products would outweigh the benefits
d. Period costs will occur whether or not production occurs and so it is improper to allocate these costs to production and defer a current cost of doing business
b. Inventory costs will always be lower than under absorption costing
Under variable costing,
a. Net income will tend to move based on changes in levels of production
b. Inventory costs will always be lower than under absorption costing
c. Net income will always be higher than under absorption costing
d. Net income will tend to vary inversely with production changes
d. The variable and fixed components of production costs
The use of variable costing requires knowing
a. The controllable and non-controllable components of all costs
b. The number of units of each product produced during the period
c. The contribution margin and break-even point for all the units produced
d. The variable and fixed components of production costs
a. Change in the quantity of units in inventory times the fixed factory overhead rate per unit
Income under absorption costing may differ from income under variable costing. How is this difference calculated?
a. Change in the quantity of units in inventory times the fixed factory overhead rate per unit
b. Number of units produced during the period times the fixed factory overhead rate per unit
c. Change in the quantity of units in inventory times the variable manufacturing cost per unit
d. Number of units produced during the period times the variable manufacturing cost per unit
b. Are deferred in inventory under absorption costing
When production exceeds sales, fixed manufacturing overhead costs
a. Are released from inventory under absorption costing
b. Are deferred in inventory under absorption costing
c. Are released from inventory under variable costing
d. Are deferred in inventory under variable costing
d. Difference in inventory valuation
What best accounts for profit difference between absorption costing and variable costing method?
a. Difference in fixed costs incurred
b. Difference in variable costs incurred
c. Difference in sales revenue
d. Difference in inventory valuation
d. Beginning and ending inventories
Variable costing and absorption costing will show the same incomes when there are no
a. Beginning inventories
b. Ending inventories
c. Variable costs
d. Beginning and ending inventories
c. Production influences income under absorption costing, but not under variable costing.
Absorption costing and variable costing differ in that
a. Standards can be used with absorption costing, but not with variable costing.
b. Absorption costing inventories are more correctly valued.
c. Production influences income under absorption costing, but not under variable costing.
d. Companies using absorption costing have lower fixed costs.
d. Net income will be erratic under absorption costing
When sales are constant but production fluctuates,
a. Net income will be erratic under variable costing
b. Absorption costing will always show a net loss
c. Variable costing will always show a positive net income
d. Net income will be erratic under absorption costing
c. The same income in both years under variable costing
Red Co. had the same activity in 2023 as in 2022, except that production was higher in 2023 (vs. 2022). Red will show
a. Higher income in 2023 than in 2022
b. The same income in both years
c. The same income in both years under variable costing
d. The same income in both years under absorption costing
b. Direct materials
Super variable costing treats which of the following costs as the only variable and product costs?
a. Direct labor
b. Direct materials
c. Straight-line depreciation of factory machine
d. Supervisory salary of an assembly line manager
d. Throughput costing
Super variable costing is sometimes referred to as
a. Full costing
b. GAAP costing
c. Indirect costing
d. Throughput costing
b. Target price
It is the expected market price for a product or service, considering the consumers' perception of value and the competitors' responses.
a. Transfer price
b. Target price
c. Cost-based price
d. Selling price
b. Penetration pricing
Fuchsia Company is introducing a new product. It priced the new product low enough to generate excitement. Which one of the following pricing approaches did management implement?
a. Price skimming
b. Penetration pricing
c. Cost-based pricing
d. Market-based pricing
b. Predatory pricing
A manufacturing firm intentionally priced its product below cost to eliminate competition. It has a reasonable prospect of recovering the resulting loss through higher prices once competition is eliminated or through a greater share in the market. The manufacturing firm has engaged in:
a. Price discrimination
b. Predatory pricing
c. Collusive pricing
d. Black market pricing
d. Other members of the marketing channel for performing certain services such as sales and marketing
Functional discounts are offered to
a. Encourage large volume purchases {volume discount}
b. Encourage prompt payment, improve cash flows and avoid bad debts {cash discount}
c. Encourage sale and stabilize production of out-of-season products {seasonal discount}
d. Other members of the marketing channel for performing certain services such as sales and marketing
