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Chapter 7 Variable Costing: A Tool for Management Garrison, Managerial Accounting, 12th Edition 313 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 Why is this page out of focus?This is a Premium document. Become Premium to read the whole document. Why is this page out of focus?This is a Premium document. Become Premium to read the whole document. Why is this page out of focus?This is a Premium document. Become Premium to read the whole document. Why is this page out of focus?This is a Premium document. 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What happens when the production equals sales?If production and sales are equal, net income will be the same under absorption costing and variable costing. Since the units manufactured are all sold, absorption costing, like variable costing, will treat the total fixed manufacturing overhead as an expense of the period.
How do you calculate net operating income under variable costing?Calculate net income by subtracting the cost of goods sold and expenses from sales revenue. The difference represents net income for the current period.
What is the operating income under variable costing?What is a Variable Costing Income Statement? A variable costing income statement is one in which all variable expenses are deducted from revenue to arrive at a separately-stated contribution margin, from which all fixed expenses are then subtracted to arrive at the net profit or loss for the period.
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When production is equal to sales net operating income reported under variable costing will be?
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