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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. What is included in inventory under absorption costing?As noted in IV 1.3. 1, inventory is initially measured at cost, which includes the cost of materials, and, for work-in-process and finished goods, the costs incurred directly or indirectly in production, which includes labor and overhead.
How is inventory valuation in absorption costing?Valuation of inventory - opening and closing inventory are valued at full production cost under absorption costing. Under/over-absorbed overhead - an adjustment for under or over absorption of overheads is necessary in absorption costing income statements.
Is direct costing the same as absorption costing?The fundamental difference between the two systems is one of timing. The direct costing model takes all the fixed cost to the income statement immediately. The absorption costing model assigns the fixed cost to units produced during the period.
When using absorption costing all of the following are included in product costs?An income statement under absorption costing includes all of the following: Answer: Direct materials, direct labor, variable overhead, and fixed overhead. How: (An income statement under absorption costing includes all production costs including direct materials, direct labor, variable overhead, and fixed overhead.)
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Inventory under absorption costing includes only direct materials and direct labor.
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