Managerial Accounting - Chapter 7: Variable Costing

Fill-in-the-blank practice flashcards covering Chapter 7: Variable Costing, including product vs. period costs, income statement reconciliation, advantages, disadvantages, and the death spiral effect.

Under absorption costing, fixed manufacturing overhead is treated as a __________ cost, whereas under variable costing, it is treated as a period cost.

product

Absorption costing is used for external decision making and is required by the IRS and __________.

GAAP

Variable costing is used primarily for __________ financial reporting.

internal

Absorption costing reports results using a traditional income statement, whereas variable costing reports results using a __________ income statement.

contribution margin

Under absorption costing, unit product cost is calculated as unit variable product cost plus ($\text{Total fixed product costs} / \text{\_\_\_\_\_\_\_\_\_\_}$).

Units produced

Under variable costing, total fixed costs equal fixed product costs plus __________.

fixed period costs

When unit production exceeds unit sales volume, absorption costing net income is __________ variable costing net income.

greater than

When unit production is less than unit sales volume, absorption costing net income is __________ variable costing net income.

less than

When unit production equals unit sales volume, there is __________ in reported net income between absorption and variable costing.

no difference

When unit production exceeds unit sales, absorption costing reports higher operating income because some current period fixed manufacturing overhead is deferred in __________ on the balance sheet.

inventory

Smurf Corporation has sales revenue of $\$550{,}000$, variable cost of goods sold of $\$170{,}000$, fixed cost of goods sold of $\$110{,}000$, and variable selling and administrative cost of $\$50{,}000$. Smurf's variable costing income statement would reveal a contribution margin of __________.

$$\$330{,}000$$

Mill Corporation has fixed manufacturing costs of $\$3.00$ per unit. If beginning inventory is $6{,}000$ units and ending inventory is $5{,}200$ units, Mill's absorption costing income compared to variable costing income is __________.

$$\$2{,}400\text{ lower}$$

A __________ decision is one in which management eliminates a product or division that has a positive contribution margin because non-controllable costs are allocated to it.

death spiral

Variable costing eliminates the managerial incentive to temporarily boost net income by producing more product than can be sold in the short term because net income tends to follow __________.

sales volume

A disadvantage of variable costing is that inventories, working capital, and owners' equity tend to be __________ on the balance sheet.

understated

The best conceptual reason for using variable costing is that fixed factory overhead is more closely related to the __________ to produce than to the production of specific units.

capacity