4.06 DECISION MAKING

Question 1

Under direct costing, are fixed costs considered period or product costs?

Answer 1

Under direct costing, all fixed costs are considered period costs

Question 2

Under direct costing, are variable selling costs considered period or product costs?

Answer 2

Under both absorption and direct costing, selling costs always are period costs and never are charged to inventory

Question 3

What are inventoriable costs under variable costing?

Answer 3

1. variable product costs
2. direct materials
3. direct labor (such as wages of assembly line personnel)
4. variable factory overhead (such as cost of electricity used to operate production machinery and the cost of scrap pieces of lumber)

Question 4

What are inventoriable costs under absorption costing?

Answer 4

1. variable product costs

2. fixed factory overhead. (such as straight-line depreciation on factory equipment)

Question 5

How do you calculate margin of safety?

Answer 5

Total sales - break-even sales = margin of safety

Question 6

How do you calculate break-even sales?

Answer 6

Break-even sales = fixed costs / contribution margin ratio.

Question 7

How do you calculate ending inventory?

Answer 7

Beg inventory
\+
Total production costs
=
Total manufacturing costs available
-
COGS
= ending inventory