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AC 2102 MANAGEMENT ACCOUNTING VARIABLE COSTING MULTIPLE CHOICE Basic Concepts 1. Under the direct costing, which is classified as product costs? A. Only variable production costs. B. Only direct costs. C. All variable costs. D. All variable and fixed production costs. (rpcpa) 1. A ? The product costs under the direct costing. Under the direct costing model, only variable production costs such as direct materials, direct labor, and variable factory overhead are included in the determination of the product costs.Fixed factory overhead is classified as a period costs, that is, automatically deducted from sales as an expense regardless of sales volume level.Hence, choice-letter “a” is correct. Choice-letter “b” is incorrect because there are direct costs that are fixed costs. Choice-letter “c” is incorrect because it refers to all variable costs and expenses. Variable expenses are always period costs either under absorption costing or variable costing model. Choice-letter “d” is incorrect because under direct costing fixed manufacturing costs are period costs. 2. In absorption costing, as contrasted with direct costing, the following are absorbed into inventory. A. All the elements of fixed and variable manufacturing overhead. B. Only the fixed manufacturing overhead. C. Only the variable manufacturing overhead. D. Neither fixed nor variable manufacturing overhead. (rpcpa) 2. A ? The elements absorbed into inventory using the absorption costing model. Choice-letter “a” is correct because all manufacturing costs, whether variable or fixed, are included in the determination of product costing using the absorption costing method. Because of such principle, choice-letters “b”, “c”. and “d” are all incorrect. 3. The absorption costing method includes in inventory Fixed factory Variable factory overhead overhead . A. No No B. No Yes C. Yes Yes D. Yes No (aicpa) 3. C ? Items included in inventory under absorption costing. The following items are included in the inventory cost using the absorption costing method: direct material, direct labor, variable overhead, and fixed overhead. Choice-letter “c” is the correct answer. 4. In an income statement prepared as an internal report using the direct (variable) costing method, fixed selling and administrative expenses would A. Not be used. B. Be used in the computation of the contribution margin. 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. 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. Is fixed manufacturing overhead a product cost in variable costing?Absorption costing treats fixed manufacturing overhead as a product cost (included in inventory on the balance sheet until sold), while variable costing treats fixed manufacturing overhead as a period cost (expensed on the income statement as incurred).
What cost are treated as product cost under variable costing?1. Under variable costing, only the variable manufacturing costs are included in product costs. Note that selling and administrative expenses are not treated as product costs; that is, they are not included in the costs that are inventoried.
How is fixed overhead treated under variable costing?With variable costing, fixed manufacturing overhead costs are treated as period costs and therefore are always expensed in the period incurred. Because all other costs are treated the same regardless of the costing method used, profit is identical when the number of units produced and sold is the same.
Are variable manufacturing costs product costs?What is Variable Costing? Variable costing is a concept used in managerial and cost accounting in which the fixed manufacturing overhead is excluded from the product-cost of production. The method contrasts with absorption costing, in which the fixed manufacturing overhead is allocated to products produced.
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Under variable costing, fixed manufacturing overhead is treated as a product cost.
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