Absorption and Variable Costing

1. Operating income computed using the direct costing would generally exceed operating income
computed using the absorption costing if:
a. units sold exceed units produced.
b. units sold are less than units produced.
c. units sold equal units produced.
d. the unit fixed cost is zero.
2. The production volume variance occurs when using:
a. the absorption costing approach because of production exceeding the sales.
b. the absorption costing approach because production differs from that used in setting the
fixed overhead rate used in applying fixed overhead to production.
c. the variable costing approach because of sales exceeding the production for the period.
d. the variable costing approach because of production exceeding the sales for the period.

3. When sales are constant, but production fluctuates:

a. Net income will be erratic under variable costing.
b. Absorption costing will always show a net loss.
c. Variable costing will always show a positive net income.
d. Net income will be erratic under absorption costing.
4. If a firm produces more units that it sells, absorption costing, relative to variable costing, will result
in:
a. Higher income and assets c. lower income but higher assets
b. Higher income but lower assets d. lower income and assets
5. Under variable costing
a. Net income will tend to move based on changes in levels of production.
b. Inventory costs will always be lower than under absorption costing.
c. Net income will always be higher than under absorption costing.
d. Net income will tend to vary inversely with production changes.
6. When production exceeds sales, fixed manufacturing overhead costs:
a. Are released from inventory under absorption costing.
b. Are deferred in inventory under absorption costing.
c. Are released from inventory under variable costing.
d. Are deferred in inventory under variable costing.
7. Absorption costing and variable costing differ in that:
a. Standards can be used with absorption costing, but not with variable costing.
b. Absorption costing inventories are more correctly valued.
c. Production influences income under absorption costing, but not under variable costing
d. Companies using absorption costing have lower fixed costs.
8. Which of the following statements is true for a firm that uses variable costing?
a. The cost of a unit of products changes because of change in number of units manufactured.
b. Profit fluctuates with sales.
c. An idle facility variation is calculated.
d. Product costs include variable administrative costs.