Horngren's Cost Accounting, Student Value Edition (16th Edition)
16th Edition
ISBN: 9780134476032
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
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Question
Chapter 9, Problem 9.20MCQ
To determine
Variable Costing:
The variable costing is a method used to allocate the fixed manufacturing overhead by a company. It allocates these
Absorption Costing:
The absorption costing is a method used to allocate the fixed manufacturing overhead by a company. It allocates these overheads based on the inventory produced and inventory sold. It is based on the approach that the unsold inventory also consist some fixed manufacturing overhead incurred during a period.
To identify: The false statement about performance measurement by variable costing and absorption costing.
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Students have asked these similar questions
Which of the following is not a potential advantage of variable costing relative absorptioncosting?a. Net income computed under variable costing is unaffected by changes productionlevels.b. It is easier to understand the impact of fixed and variable costs on computation of netincome when variable costing is used.c. The use of variable costing is consistent with cost-volume-profit analysis.d. Net income computed under variable costing is not closely tied to changes in sales level.
Which of the following is not a potential advantage of variable costing relative to absorption costing?
Net income calculated under variable costing is not closely tied to changes in sales levels.
Net income calculated under variable costing is unaffected by changes in production levels.
It is easier to understand the impact of fixed and variable costs on the computation of net income when variable costing is used.
The use of variable costing is consistent with cost-volume-profit analysis
When absorption costing is used a. management may be tempted to overproduce in a given period in
order to decrease net income. b. for external reporting, variable costing can still be used for internal
reporting purposes. c. it facilitates cost-volume-profit analysis. d. and production exceeds sales,
absorption costing reports a lower net income than variable costing.
Chapter 9 Solutions
Horngren's Cost Accounting, Student Value Edition (16th Edition)
Ch. 9 - Differences in operating income between variable...Ch. 9 - Why is the term direct costing a misnomer?Ch. 9 - Do companies in either the service sector or the...Ch. 9 - Explain the main conceptual issue under variable...Ch. 9 - Companies that make no variable-cost/fixed-cost...Ch. 9 - The main trouble with variable costing is that it...Ch. 9 - Give an example of how, under absorption costing,...Ch. 9 - What are the factors that affect the breakeven...Ch. 9 - Critics of absorption costing have increasingly...Ch. 9 - What are two ways of reducing the negative aspects...
Ch. 9 - Prob. 9.11QCh. 9 - Describe the downward demand spiral and its...Ch. 9 - Will the financial statements of a company always...Ch. 9 - Prob. 9.14QCh. 9 - The difference between practical capacity and...Ch. 9 - In comparing the absorption and variable cost...Ch. 9 - Queen Sales, Inc. has just completed its first...Ch. 9 - King Tooling has produced and sold the following...Ch. 9 - The following information relates to Drexler Inc.s...Ch. 9 - Prob. 9.20MCQCh. 9 - Variable and absorption costing, explaining...Ch. 9 - Throughput costing (continuation of 9-21). The...Ch. 9 - Variable and absorption costing, explaining...Ch. 9 - Throughput costing (continuation of 9-23). The...Ch. 9 - Variable versus absorption costing. The Tomlinson...Ch. 9 - Absorption and variable costing. (CMA) Miami,...Ch. 9 - Absorption versus variable costing. Horace Company...Ch. 9 - Candyland uses standard costing to produce a...Ch. 9 - Capacity management, denominator-level capacity...Ch. 9 - Denominator-level problem. Thunder Bolt Inc., is a...Ch. 9 - Variable and absorption costing and breakeven...Ch. 9 - Variable costing versus absorption costing. The...Ch. 9 - Throughput Costing (continuation of 9-32) 1....Ch. 9 - Variable costing and absorption costing, the Z-Var...Ch. 9 - Comparison of variable costing and absorption...Ch. 9 - Effects of differing production levels on...Ch. 9 - Alternative denominator-level capacity concepts,...Ch. 9 - Motivational considerations in denominator-level...Ch. 9 - Denominator-level choices, changes in inventory...Ch. 9 - Variable and absorption costing and breakeven...Ch. 9 - Downward demand spiral. Market.com is about to...Ch. 9 - Absorption costing and production-volume...Ch. 9 - Operating income effects of denominator-level...Ch. 9 - Variable and absorption costing, actual costing....Ch. 9 - Prob. 9.45PCh. 9 - Cost allocation, responsibility accounting, ethics...Ch. 9 - Absorption, variable, and throughput costing....Ch. 9 - Costing methods and variances, comprehensive. Rob...
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Similar questions
- Which statement is correct? A. Activity-based cost systems are less costly than traditional cost systems. B. Activity-based cost systems are easier to implement than traditional cost systems. C. Activity-based cost systems are more accurate than traditional cost systems. D. Activity-based cost systems provide the same data as traditional cost systems.arrow_forward1. Explain why the variances used to reconcile profit in a standard costing system are different from those used in a standard absorption costing system. 2. Explain the arguments for the use of traditional absorption costing rather than marginal costing for profit reporting and inventory valuation.arrow_forwardTRUE OR FALSE Performance evaluation based on income could be best achieved by using variable costing method in costing the products rather than absorption costing method.arrow_forward
- Wrong allocation of common costs lead to A. Inaccurate estimation of cost of products or services B. Under utilization of capacity C. Lower profit margin D. All of the above are correctarrow_forwardWhich of the following statement is correct? A In a variable costing income statement, sales revenue is typically higher than in absorption costing income statement. B When production is not equal to sales, income under absorption costing differs from income under variable costing due to the difference in treatment ( product cost and period cost) of the fixed overhead cost under the two costing methods. C In variable costing system, fixed overhead cost is included as part of the cost of inventory. D In an absorption costing system, fixed overhead cost is treated as a period cost.arrow_forwardWhat is the basic difference between variable costing and absorption costing?a. Variable costing always produces less taxable income that absorption costing.b. Variable costing recognizes fixed costs as a period cost and absorption costingrecognizes fixed costs as a product cost.c. Variable costing cannot use standards, whereas standards may be used with absorptioncosting.d. Variable costing may be used only in situations where production is essentiallyhomogenous, but absorption costing may be used under any manufacturing condition.arrow_forward
- Which of the following statements regarding absorption and variable costing is correct? A Absorption costing results in higher income when inventory increases. B Variable manufacturing costs are lower under absorption costing. C Overhead costs are treated in the same manner under both variable and absorption costing methods. D Profits are always the same under two costing methods.arrow_forwardWhich of the following statements is false ? a. Volume-based costing has typically resulted in undercost for high-volume products and overcost for low-volume products . b. All the statements are false . c . Activity-based costs per unit are always greater than volumebased costs per unit. d. Activity-based costing typically provides less information about product costs while requiring more recordkeeping. e. Different cost allocation methods are constructed so that they typically result in the same or similar estimates of how much it costs to make a product.arrow_forwardWhich of the following is not a true statement about variable costs? a. Total cost is known to change in proportion to any changes in related level of volume or activity. O b. When considering total cost behaviour, focus on fixed and variable costs. O c. A total cost that can change in proportion to changes in the number of products produced. O d. Total cost never changes in proportion to any changes in related levels of volume or activity. O e. An important cost to identify so managers can make important management decisions.arrow_forward
- 1. Why are indirect costs not directly traced to cost objects in the same way as direct costs? 2. Define cost tracing, cost allocation, allocation base and cost driver. 3. Distinguish between arbitrary and cause-and-effect allocations. 4. Explain how cost information differs for profit measurement/inventory valuation requirements compared with decision-making requirements. 5. Explain why cost systems should differ in terms of their level of sophistication.arrow_forwardWhen standard costs are used in applying the cost-plus approach to product pricing, the standards should be based upon normal levels of performance. True Falsearrow_forwardWhich of the following is NOT true of variable costing? a. Profits may increase though sales decrease. b. Profits fluctuate with sales. c. The cost of the product consists of all variable production costs. d. The income statement under variable costing does not include overhead volume variance.arrow_forward
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