Week 8 - Absorption and Variable Costing IV

Question 1

What is the first advantage of the contribution approach?

Answer 1

Management finds it easy to understand

Question 2

What is the second advantage of the contribution approach?

Answer 2

Consistent with CostVolumeProfit analysis

Question 3

What is the third advantage of the contribution approach?

Answer 3

Net income is closer to net cash flow

Question 4

What is the fourth advantage of the contribution approach?

Answer 4

Consistent with standard costs and flexible budgeting

Question 5

What is the fifth advantage of the contribution approach?

Answer 5

Easier to estimate profitability of products and segments

Question 6

What is the sixth advantage of the contribution approach?

Answer 6

Profit is not affected by changes in inventories

Question 7

What is the seventh advantage of the contribution approach?

Answer 7

Impact of fixed costs on profits emphasised

Question 8

What are the first four advantages of the contribution approach?

Answer 8

• management finds it easy to understand
• consistent with CostVolumeProfit analysis
• net income is closer to net cash flow
• consistent with standard costs and flexible budgeting

Question 9

What are the final three advantages of the contribution approach?

Answer 9

• easier to estimate profitability of products and segments
• profit is not affected by changes in inventory
• impact of fixed costs on profits emphasised

Question 10

Absorption vs Variable : Fixed/manufacturing costs

Answer 10

Absorption - manufacturing costs must be assigned to products to properly match revenues and costs
Variable - Fixed costs are not really the costs of any particular product

Question 11

Absorption vs Variable:
Depreciation, taxes, insurance and salaries

Answer 11

Absorption - are just as essential to products as variable costs
Variable - are capacity costs and will be incurred regardless of anything being produced