chapter 6 exam questions tough

Question 1

Income __________ when there is zero beginning inventory and all inventory units produced are sold.

Answer 1

When there is zero beginning inventory and all units produced are sold, there is no ending inventory to absorb fixed manufacturing overhead costs. As a result, both variable costing and absorption costing will yield the same income in this particular scenario.

Question 1

A company had income of $500,000 based on variable costing. Beginning and ending finished goods inventories were 100,000 units and 96,000 units, respectively. Assume the fixed overhead per unit was $1.50 for both the beginning and ending finished goods inventory. The income under absorption costing is:

Answer 1

Change in Fixed Overhead in Ending Inventory=(96,000−100,000)×$1.50=−$6,000

Absorption Income =
$500,000
−
$
6
,
000
=
$
494
,
000
Absorption Income=$500,000−$6,000=$494,000

Question 2

Which of the following statements is true regarding absorption costing?

It requires only variable costs to be treated as product costs.

It is not permitted to be used for tax reporting.

It assigns all manufacturing costs to products.

Fixed overhead is included in period expenses under absorption costing.
Incorrect

It is not permitted to be used for financial reporting.

Answer 2

It assigns all manufacturing costs to products.