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Question 1 (Mandatory)
(2 points)
Absorption costing is required for reporting to which of the following groups?
A)
The SEC
B)
The IRS
C)
Senior Management
D)
The IMA
E)
A and B only
Question 2 (Mandatory)
(2 points)
The equation to find Contribution Margin under absorption costing is:
A)
Sales - Variable Costs
B)
Absorption costing does not calculate Contribution Margin
C)
Sales - Variable Costs - Fixed Costs
D)
Sales - Fixed Costs
E)
Gross Profit + Fixed Costs
Question 3 (Mandatory)
(2 points)
Under absorption costing, which of the following costs are applied to manufactured inventory?
A)
All fixed costs
B)
All manufacturing costs
C)
All variable costs
D)
All administrative costs
E)
All period costs
Question 4 (Mandatory)
(2 points)
Under variable costing, Gross Profit is equal to:
A)
Sales - Variable Costs
B)
Variable costing does not calculate Gross Profit
C)
Sales - Variable Costs - Fixed Costs
D)
Contribution Margin - Fixed Costs
E)
Sales - Fixed Costs
Question 5 (Mandatory)
(2 points)
Which of the following correctly represents how to calculate absorption net income?
A)
Variable net income + (Change in Inventory units x Fixed Overhead Rate)
B)
Variable net income – (Change in Inventory units x Fixed Overhead Rate)
C)
Variable net income + (Change in Inventory units x Variable Overhead Rate)
D)
Variable net income – (Change in Inventory units x Variable Overhead Rate)
E)
None of the above
Question 6 (Mandatory)
(2 points)
Which of the following costs would be applied to manufactured inventory under variable
costing?
A)
Rental payments on administrative offices
B)
Cost of raw materials
C)
Salary of factory manager
D)
Rental payments on factory
E)
Commissions to sales persons
Question 7 (Mandatory)
(2 points)
Which of the following costs would be subtracted from Revenue to calculate Contribution Margin on a Variable Income Statement?
A)
Direct Materials costs
B)
Sales commissions
C)
Variable Manufacturing Overhead
D)
Direct Labor Wages
E)
All of the above
Question 8 (Mandatory)
(3 points)
Which of the following costs would
not
be subtracted from Revenue to calculate Gross Profit on an Absorption Income Statement?
A)
Direct Materials costs
B)
Sales commissions
C)
Variable Manufacturing Overhead
D)
Direct Labor Wages
E)
All of the above would be subtracted
Question 9 (Mandatory)
(3 points)
Which of the following is a disadvantage of using variable costing?
A)
Inventory values tend to be overstated.
B)
Two sets of accounting records must be maintained.
C)
CVP relationships are more difficult to determine than under absorption costing.
D)
Per-customer or per-product contribution margin is obscured.
E)
All of the above
Question 10 (Mandatory)
(3 points)
Which of the following is a drawback to absorption costing as opposed to variable costing?
A)
Management cannot accurately price products because non-manufacturing overhead is not applied to inventory
B)
Managers can manipulate earnings by simply producing more than is sold in a period
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Related Questions
If an income statement is prepared as an internal report, under which of the following methods would the term gross margin most likely appear?
Question 10 options:
a)
Both absorption costing and variable costing.
b)
Absorption costing but not variable costing.
c)
Variable costing but not absorption costing.
d)
Neither variable costing nor absorption costing
arrow_forward
1. Multiple-Choice Question - FIFO
When using FIFO,
A) Identical costs go to the balance sheet and the income statement.
B) Management uses average costs to assign to the balance sheet and the income statement.
C) Older costs go to the income statement; newer costs go to the balance sheet.
D) Older costs go to the balance sheet; newer costs go to the income statement.
Explain for the answer chosen please.
arrow_forward
В.
Explain the following: Product costs and Period costs and one example of each.
Distinguish clearly between Financial Accounting and Management Accounting under 3
(THREE) different factors, which are: i. Stakeholders, ii. Time frame and iii. Regulations.
С.
Before calculating costs we need to understand how different costs behave. In cost
accounting we typically classify costs by three types of behaviour: Fixed costs - costs
which don't change as the activity level changes Variable costs - costs which change in
direct proportion to changes in the activity level Semi-variable costs- costs which have
both fixed and variable elements. Explain the purpose classifying costs into the behavior
patterns.
D.
arrow_forward
19) For internal decision-making purposes, many companies use the income statement using the
approach. For extemal reporting, most companies use the income statement using the
approach.
A) full costing: variable costing
C) absorption; contribution
B) contribution; absorption
D) absorption; absorption
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2. Consider the following statements about absorption costing and variable costing:
Variable costing is consistent with contribution reporting and cost-volume-profit analysis.
Absorption costing must be used for external financial reporting.
A number of companies use both absorption costing and variable costing.
Which of the above statements is (are) True?
Group of answer choices
a. I, II and III.
b. II only
c. I and II
d. III only
e. I only.
arrow_forward
Listed below are nine technical accounting terms introduced in this chapter:Variable costs Relevant range Contribution marginBreak-even point Fixed costs Semivariable costsEconomies of scale Sales mix Unit contribution marginEach of the following statements may (or may not) describe one of these technical terms. For each
statement, indicate the accounting term described, or answer “None” if the statement does not cor-rectly describe any of the terms.
a. The level of sales at which revenue exactly equals costs and expenses.b. Costs that remain unchanged despite changes in sales volume.c. The span over which output is likely to vary and assumptions about cost behavior generallyremain valid.d. Sales revenue less variable costs and expenses.e. Unit sales price minus variable cost per unit.f. The reduction in unit cost achieved from a higher level of output.g. Costs that respond to changes in sales volume by less than a proportionate amount.h. Operating income less variable costs.
arrow_forward
Which statement is TRUE?
An absorption costing income statement calculates gross profit; a variable costing income statement calculates contribution margin.
Both variable costing and absorption costing income statements calculate contribution margin.
A variable costing income statement calculates gross profit; an absorption costing income statement calculates contribution margin.
Both variable costing and absorption costing income statements calculate gross profit.
I DON'T KNOW YET
arrow_forward
Which method is required by GAAP for external financial statements?
ANSWER
Absorption costing
Variable costing
Neither absorption or variable costing
Both absorption and variable costing
I DON'T KNOW YET
arrow_forward
Required :
a) Explain and reconcile the different in operating income between the two costingmethod.b) Explain, which costing method would you recommend to CFO.
arrow_forward
Following GAAP, the income statement issued to investors and creditors must
OA. be prepared in the contribution margin format
OB. be prepared using variable costing
OC. show the value of contribution margin
OD. be prepared in the traditional format
arrow_forward
Which of the following statements is true? (You may select more than one answer.)a. A common cost is one type of direct cost.b. A sunk cost is usually a differential cost.c. Opportunity costs are not usually recorded in the accounts of an organization.d. A particular cost may be direct or indirect depending on the cost object.
arrow_forward
1. What is a segment of an organization? Give a few examples of segments of
Walmart Corporation.
2. What costs are assigned to a segment under the contribution approach?
3. Distinguish between a traceable fixed cost and a common fixed cost.
4. Explain how the contribution margin is different from the segment margin.
5. Why aren't common fixed costs allocated to segments under the contribution
approach?
arrow_forward
company
You are a management accountant of EON and Brothers Ltd., a
manufacturing
that produces two products
simultaneously in one of their production plants. You are asked to
produce a management report on costing techniques. This
company follows a traditional approach to costing and absorbs
production overhead using machine hours. The company's policy
is to add a 50% markup on the unit cost to obtain the selling
price.
The relevant information is given below:
EON and Brothers Ltd. produces two similar products called Alfa
and Beta.
Total Overheads = £155,000
Machine Hours = 58980 hrs
Product
Alfa Beta
Production Units
2,580 5,100
Material Cost per unit £31 £51
Labour Cost per unit £21 £17
Machine Hours per unit 11 16
After discussing with all the important people of the production
plant you have allocated the overhead costs as mentioned below:
% Overheads
Set up Costs
30
Inspections
40
Materials Handling 30
Cost Pools are as mentioned below:
Alfa Beta Total
Setups
400 65 465…
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1. Activity based costing is likely a more advantageous costing methold versus traditonal costing, to facilliate which of the following type of analysis? a) analysis of service organization cost b) analysis of channel profitablity c) analysis of long term profitablity d) analysis for reduction selling price of all products?
2. A ___ is any factor that causes a change in the cost of an activity. a) activity based cost b) cost pool c) cost driver d) standard
3. Which of the following is no a basic cost category for indirect cost? a) inventory financing cost b) Volume related cost c) Product batch cost d) activity based cost
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7.
Which of the following statement is false?
Multiple Choice
a)The contribution margin income statement format separates costs according to cost behaviour.
b)Fixed manufacturing overhead is treated as a period cost under absorption costing method.
c)Fixed manufacturing overhead is treated as a product cost under absorption costing method.
d)Variable costing method is more useful than absorption costing approach in internal and managerial decision-making.
e)The absorption costing approach is used in external financial reporting.
arrow_forward
Please Do not Give image format
Allocate manufacturing, ordering, and selling costs to the two customer groups by using an activity-based management (ABM) allocation basis. Calculate the net profit before tax (NPBT) for each customer group using an ABM allocation basis.
arrow_forward
Required:
a) Use activity-based costing to estimate the cost of preparing:
i A wage and salary tax return.
ii A business tax return.
b) n the light of your answers to requirement 1, evaluate the firm's pricing policy.
arrow_forward
Which of the following is/ are considered as the uses of standard costing?
Statement 1: Establishing standards that reflect efficient operating conditions
Statement 2: Helping managers understand what needs to be done to improve current and future performance.
Statement 3: Achieving significant revenue reductions.
Group of choices:
Statements 1 and 2
Statements 1 and 3
Statements 1, 2 and 3
Statements 2 and 3
arrow_forward
Accounting Question
arrow_forward
Firms may choose to use absorption costing or variable costing for external financial reporting purposes.
True or False
True
False
arrow_forward
Which THREE of the following statements about activity-based costing (ABC) and traditional costing systems (absorption costing and marginal costing) are correct?
OABC is better than absorption costing in understanding what causes costs to be incurred
Both ABC and marginal costing treat all fixed costs as product costs
No over-absorption or under-absorption of overheads can occur under ABC
Marginal costing understates the true cost of a product when compared to ABC
ABC is not suitable for use in businesses that provide services
OABC is useful for businesses which have high overheads in their cost structure
arrow_forward
Differential costs represent –
Group of answer choices
the costs which is shown in the balance sheet but not expensed in the income statement until the sale of the products.
The differences in costs among different departments of an organization.
the amount of increase or decrease in costs from a particular course of action when compared to its alternatives
the difference between controllable costs and non-controllable costs.
arrow_forward
Chapter 3- CVP
Cost-volume-profit (CVP) analysis requires an understanding of cost behavior: variable and fixed costs. Cost behavior differs from the
GAAP-based financial reporting focus: product and period costs. The two ways to categorize costs results in TWo different income
statements:
Absorption costing income statement: S-C-GM-SA-NI (Key assumption: Split costs into product and period costs)
Variable costing income statement: S-VE-CM-FE-NI (Key assumption: Split costs into variable and fixed)
1.
2.
Absorption Costing Income Statement
Variable Costing Income Statement
Sales
$500,000
Sales
$500,000
Less: Variable expenses
Less: Cost of goods sold:
Variable (DM+DL+VOH)
Fixed (FOH)
Gross margin
100,000
Product costs
100,000
60,000
S&A costs
110,000
340,000
Contribution margin
290,000
Less: Fixed expenses
Less: Selling & administrative
Variable
110,000
Product costs
60,000
Fixed
140,000
S&A costs
140,000
Taxable income
$90,000
Taxable income
$90,000
LINK THE LINEAR COST FUNCTION TO…
arrow_forward
True/False
1. Under absorption costing, the company calculates gross margin
2.
arrow_forward
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