Chapter 8 - Absorption and Variable Costing Flashcards
Which accounting method is used for external reporting?
A) responsibility costing
B) absorption costing
C) transfer price costing
D) variable costing
B) absorption costing
Correct answer
What is the primary difference between variable and absorption costing?
A) inclusion of fixed selling expenses in product costs
B) inclusion of fixed selling expenses in period costs
C) inclusion of variable factory overhead in period costs
D) inclusion of fixed factory overhead in product costs
D) inclusion of fixed factory overhead in product costs
Which of the following costs is NOT included in inventory under absorption costing?
A) direct labour
B) direct materials
C) fixed selling expenses
D) fixed factory overhead
C) fixed selling expenses
Which of the following best defines variable costing?
A) not a useful tool for companies with multiple segments
B) a useful tool for external reporting purposes
C) a good way to value inventories for the balance sheet
D) a useful tool for management decision making
D) a useful tool for management decision making
Suppose production is less than sales volume. What is the relationship between net income under absorption costing and profits when using variable-costing procedures?
Hide answer choices
A) Net income under absorption costing will be less than profits when using variable costing.
Correct answer
Net income under absorption costing will be equal to profits when using variable costing.
Net income under absorption costing will be greater than profits when using variable costing.
Net income under absorption costing will be randomly different from profits when using variable costing.
