Multiple Choice

a 1. Which of the following is NOT a type of absorption costing?

a. Direct costing.
b. Actual costing.
c. Normal costing.
d. None of the above.

b 2. Variable costing is UNACCEPTABLE for

a. managerial accounting.
b. financial accounting.
c. transfer pricing.
d. reporting by product lines for internal purposes.

d 3. A criticism of variable costing for managerial accounting purposes is that it

a. is not acceptable for product line segmented reporting.
b. does not reflect cost-volume-profit relationships.
c. overstates inventories.
d. might encourage managers to emphasize the short term at the expense of the long term.

c 4. Normal costing and standard costing differ in that

a. the two systems can show different overhead budget variances.
b. only normal costing can be used with absorption costing.
c. the two systems show different volume variances if standard hours do not equal actual hours.
d. normal costing is less appropriate for multiproduct firms.

d 5. Variable costing and absorption costing will show the same incomes when there are no
a. beginning inventories.
b. ending inventories.
c. variable costs.
d. beginning and ending inventories.

c 6. ABC had the same activity in 20X3 as in 20X2 except that production was higher in 20X3 than in 20X2. ABC will show
a. higher income in 20X3 than in 20X2.
b. the same income in both years.
c. the same income in both years under variable costing.
d. the same income in both years under absorption costing.

b 7. The use of variable costing requires knowing

a. the contribution margin and break-even point for each product.
b. the variable and fixed components of production cost.
c. controllable and noncontrollable components of all costs.
d. the number of units of each product produced during the period.

d 8. Which measure of activity is likely to give the LOWEST standard fixed cost per unit?
a. Actual activity.
b. Normal capacity.
c. Budgeted activity.
d. Practical capacity.

c 9. Which item is NOT used to compute the fixed overhead volume variance?
a. Standard fixed cost per unit.
b. Budgeted fixed overhead.
c. Actual fixed overhead.
d. Actual quantity produced.

b 10. Which variance is LEAST relevant for control purposes?

a. Material use variance.
b. Fixed overhead volume variance.
c. Fixed overhead budget variance.
d. Labor efficiency variance.

a 11. A company that sets a standard fixed cost based on practical capacity
a. should expect unfavorable volume variances.
b. will set its selling prices too low.
c. has a higher cost per unit than a company using normal activity to set the standard.
d. usually overapplies its fixed costs.

a 12. A predetermined overhead rate for fixed costs is unlike a standard fixed cost per unit in that a predetermined overhead rate is
a. based on an input factor like direct labor hours and a standard cost per unit is based on a unit of output.
 b. based on practical capacity and a standard fixed cost can be based on any level of activity.
c. used with variable costing while a standard fixed cost is used with absorption costing.
d. likely to be higher than a standard fixed cost per unit.

b 13. ABC had $400,000 budgeted fixed overhead costs and based its standard on normal activity of 40,000 units. Actual fixed overhead costs
were $430,000, actual production was 36,000 units, and sales were 30,000 units. The volume variance was
a. $30,000.
b. $40,000.
c. $70,000.
d. $77,777.

a 14. Advocates of variable costing for internal reporting purposes do NOT rely on which of the following points?
a. The matching concept.
b. Price-volume relationships.
c. Absorption costing does not include selling and administrative expenses as part of inventoriable cost.
d. Production influences income under absorption costing.

d 15. Calculating income under variable costing does NOT require knowing
a. unit sales.
b. unit variable manufacturing costs.
c. selling price.
d. unit production.

a 16. Inventoriable costs under absorption costing include

a. both fixed and variable production costs.
b. only variable production costs.
c. all production costs plus variable selling and administrative costs.
d. all production costs plus all selling and administrative costs.

b 17. Inventoriable costs under variable costing include

a. fixed and variable production costs.
b. variable production costs.
c. all production costs plus variable selling and administrative costs.
d. all production costs plus all selling and administrative costs.

d 18. Absorption costing and variable costing differ in that

a. income is lower under variable costing.
b. variable costing treats selling costs as period costs.
c. variable costing treats all variable costs as product costs.
d. inventory cost is higher under absorption costing.

c 19. Absorption costing differs from variable costing in that

a. standards can be used with absorption costing, but not with variable costing.
b. absorption costing inventories are more correctly valued.
c. production influences income under absorption costing, but not under variable costing.
d. companies using absorption costing have lower fixed costs.

a 20. Which method gives the lowest inventory cost per unit?
a. Variable costing.
b. Absorption costing using normal activity to set the standard fixed cost.
c. Absorption costing using practical capacity to set the standard fixed cost.
d. Actual absorption costing.

b 21. Which costs are treated differently under absorption costing and variable costing?
a. Variable manufacturing costs.
b. Fixed manufacturing costs.
c. Variable selling and administrative expenses.
d. Fixed selling and administrative expenses.

a 22. ABC Company had 15,000 units in ending inventory. The total cost of those units under variable costing is
a. less than it is under absorption costing.
b. the same as it is under absorption costing.
c. more than it is under absorption costing.
d. any of the above.

b 23. York Company had $200,000 income using absorption costing. York has no variable manufacturing costs. Beginning inventory was
$15,000 and ending inventory was $22,000. Income under variable costing would have been
a. $178,000.
b. $193,000.
c. $200,000.
 d. $207,000.

c 24. An unfavorable volume variance means that

a. cost control was probably poor.
b. absorption costing income is lower than variable costing income.
c. actual output was less than the level used to set the standard fixed cost.
d. actual output was more than the level used to set the standard fixed cost.

d 25. Which variance CANNOT arise under variable costing?

a. variable overhead budget variance.
b. variable overhead efficiency variance.
c. fixed overhead budget variance.
d. fixed overhead volume variance.

a 26. Standard costing differs from normal costing in the treatment of

a. materials, direct labor, and overhead.
b. materials and direct labor.
c. direct labor and overhead.
d. overhead.

d 27. Normal costing differs from actual costing in treating

a. materials, direct labor, and overhead.
b. materials and direct labor.
c. direct labor and overhead.
d. overhead.

c 28. As compared to normal costing, standard costing can yield

a. different volume variances and budget variances.
b. different budget variances.
c. different volume variances.
d. none of the above.

c 29. Under variable costing there can be no

a. fixed overhead variances.
b. fixed overhead budget variance.
c. fixed overhead volume variance.
d. no fixed overhead.

c 30. ABC had the same activity in 20X4 as in 20X3 except that production was lower in 20X4 than in 20X3. ABC will show
a. lower income in 20X4 than in 20X3.
b. the same income in both years.
c. the same income in both years under variable costing.
d. the same income in both years under absorption costing.

a 31. Rounder Industries manufactures a single product. Variable production costs are $20 and fixed production costs are $300,000. Rounder uses
a normal activity of 20,000 units to set its standard costs. Rounder began the year with no inventory, produced 22,000 units, and sold
21,000 units. Ending inventory under variable costing would be
a. $20,000.
b. $30,000.
c. $35,000.
d. cannot be determined without further information.

c 32. Rounder Industries manufactures a single product. Variable production costs are $20 and fixed production costs are $300,000. Rounder uses
a normal activity of 20,000 units to set its standard costs. Rounder began the year with no inventory, produced 22,000 units, and sold
21,000 units. Ending inventory under absorption costing would be
a. $20,000.
b. $30,000.
c. $35,000.
d. cannot be determined without further information.

a 33. Rounder Industries manufactures a single product. Variable production costs are $20 and fixed production costs are $300,000. Rounder uses
a normal activity of 20,000 units to set its standard costs. Rounder began the year with no inventory, produced 22,000 units, and sold
21,000 units. The volume variance under variable costing would be
a. $0.
b. $20,000.
c. $30,000.
d. some other number.

c 34. Rounder Industries manufactures a single product. Variable production costs are $20 and fixed production costs are $300,000. Rounder uses
a normal activity of 20,000 units to set its standard costs. Rounder began the year with no inventory, produced 22,000 units, and sold
 21,000 units. The volume variance under absorption costing would be
a. $0.
b. $20,000.
c. $30,000.
d. some other number.

b 35. Rounder Industries manufactures a single product. Variable production costs are $20 and fixed production costs are $300,000. Rounder uses
a normal activity of 20,000 units to set its standard costs. Rounder began the year with no inventory, produced 22,000 units, and sold
21,000 units. The standard cost of goods sold under variable costing would be
a. $400,000.
b. $420,000.
c. $735,000.
d. some other number.

c 36. Rounder Industries manufactures a single product. Variable production costs are $20 and fixed production costs are $300,000. Rounder uses
a normal activity of 20,000 units to set its standard costs. Rounder began the year with no inventory, produced 22,000 units, and sold
21,000 units. The standard cost of goods sold under absorption costing would be
a. $400,000.
b. $420,000.
c. $735,000.
d. some other number.

c 37. Alpha Company has a standard fixed cost of $10 per unit. At an actual production of 16,000 units an unfavorable volume variance of
$20,000 resulted. What were total budgeted fixed costs?
a. $140,000
b. $160,000
c. $180,000
d. Cannot be determined wit