Managerial Accounting Testbank

Chapter 7 Variable Costing: A Tool for Management

True/False Questions 1. The inventory value shown on the balance sheet is generally higher under absorption costing than under variable costing. Answer: True Level: Medium LO: 1 2. Under variable costing, inventoriable product costs consist of direct materials, direct labor, variable manufacturing overhead and variable selling and administration expenses. Answer: False Level: Medium LO: 1 3. Under variable costing, an increase in the fixed factory overhead will have no effect on the unit product cost. Answer: True Level: Medium LO: 1 4. Under the absorption costing method, a portion of fixed manufacturing overhead cost is allocated to each unit of product. Answer: True Level: Easy LO: 1 5. Under variable costing, it is possible to defer a portion of the fixed manufacturing overhead costs of the current period to future periods through the inventory account. Answer: False Level: Medium LO: 2 6. Under absorption costing, a portion of fixed manufacturing overhead cost is released from inventory when sales volume exceeds production volume. Answer: True Level: Medium LO: 2 7. Contribution margin and gross margin mean the same thing. Answer: False Level: Easy LO: 2 8. When reconciling variable costing and absorption costing net operating income, fixed manufacturing overhead costs deferred in inventory under absorption costing should be deducted from variable costing net operating income to arrive at the absorption costing net operating income. Answer: False Level: Medium LO: 3

Garrison, Managerial Accounting, 12th Edition

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Chapter 7 Variable Costing: A Tool for Management

9. If production equals sales for the period, absorption costing and variable costing will produce the same net operating income under LIFO. Answer: True Level: Medium LO: 3 10. When the number of units in inventories decrease between the beginning and end of the period, absorption costing net operating income will typically be greater...