Chapter 6

Question 1

This costing considers direct materials costs, direct labor costs, variable manufacturing overhead cost, and fixed manufacturing overhead costs as product costs.

Answer 1

absorption costing

Question 2

An alternative costing method that considers only variable manufacturing costs when determining product costs. Fixed manufacturing is considered period costs.

Answer 2

Variable costing

Question 3

When an equal amount of units are sold, what’s the difference between absorption and variable costing?

Answer 3

Nothing, they both have the same operating income and a 0 balance in finished goods inventory

Question 4

When more units are produced than sold, what’s the difference between variable and absorption costing`

Answer 4

Absorption costing will have a higher Operating income and higher finished goods inventory because each unit price includes fixed manufacturing overhead, therefore price per unit is more.

Question 5

When less units are produced than sold, what’s the difference between absorption costing and variable costing.

Answer 5

Absorption costing OI will be lower because the cost per unit is higher, meaning costs of goods sold is higher.

Question 6

When should variable costing be used to make decisions

Answer 6

1. When setting sales price on 1 time or short runs when fixed cost are already allocated
2. To control the cost you have authority over
3. Short term production planning
4. Analyzing profitability on products with different variable cost.

Question 7

An identifiable part of the company for which financial information is available.

Answer 7

Business segment