Chapter 6: Absorption and Variable Costing

Question 1

Refresher: products costs are expensed when?

Answer 1

expensed when sold; other cost are in inventories

Question 2

Refresher:period costs are expensed when?

Answer 2

expensed as inccured (as they happen)

Question 3

Absorption Costing

Answer 3

treats all costs of production as products.

-cost of a unit of product under the absorption costing method consists of direct materials, direct labor, and both variable and fixed MOH

Question 4

AC: is FMOH allocated?

Answer 4

it is allocated to each unit of product

Question 5

AC:What are period cost in reference to an alternate name?

Answer 5

selling and administrative expenses(both fixed and variable)

Question 6

AC: If product is sold and if not sold?

Answer 6

the FOH, as well As DM,DL, and VOH is expensed; if product is not sold then FOH as well as DM,Dl, & VOH is in inventory

Question 7

AC: only method acceptable for tax reporting and audited external reports)

Answer 7

GAAP

Question 8

Define Variable Costing

Answer 8

only those cots of production that vary directly with volume are treated as product costs

Question 9

VC: Product Costs Consist of?

Answer 9

DM,DL, and variable MOH

Question 10

VC: When are the product costs expensed ?

Answer 10

when sold otherwise they are cost in ending inventory

Question 11

AC vs. VC: Fixed Manufacturing Overhead is not

Answer 11

treated as a product cost under variable costing. Rather it is treated as a period cost and deducted in full each year from revenues

Question 12

AC vs. VC: What is there never in inventories for variable costing?

Answer 12

never any FOH

Question 13

Period cost consist of

Answer 13

FOH and S&A

Question 14

What is variable costing used for?(like internally in the company)

Answer 14

may be used by companies internally for planning and for controlling operations

Question 15

What is variable costing not acceptable for?

Answer 15

tax reporting and audited external reports

Question 16

What does variable costing approximate?

Answer 16

more closely approximates cash flows

Question 17

What are selling costs considered in both methods?

Answer 17

-they are always period costs

Question 18

Do the variable costing deferred and released terms?

Answer 18

…..

Question 19

What can FOH be each period?

Answer 19

different depending on levels of production

Question 20

Comparing Variable NI to Variable NI

Answer 20

the higher the sales the higher the net income, thus if sales are the same then NI is same

Question 21

Absorption NI to Absorption NI

Answer 21

more produced the less per unit, thus if sales are same you will have different NI if production levels change

Question 22

COGS/COGM formula

Answer 22

Beginning FG Inventory
\+COGM
----------------------------------------
GAFS
-Ending FG Inventory
-------------------------------------------
COGS

Question 23

How to get FMOH per unit?

Answer 23

FMOH/ units produced

Question 24

Units Produced=Units Sold

Answer 24

• no change in inventories

- absorption costing net operating income=variable costing net operating income

Question 25

Units Produced> Units Sold

Answer 25

• inventories increase

- absorption costing net operating income> variable costing net operating income

Question 26

Units Produced< Units Sold

Answer 26

Absorption costing net operating income< Variable Costing Net Operating Income

Question 27

Absorption costing expenses only the FOH….

Answer 27

on units SOLD

Question 28

Variable costing expenses all FOH….

Answer 28

for the period regardless of sales