Name: __________________________ Schedule: __________ Date: _________

Instruction: Write the letter of your choice before the number.

1. Consider the following three product costing alternatives: process costing, job order costing, and standard
costing. Which of these can be used in conjunction with absorption costing?
a. job order costing
b. standard costing
c. process costing
d. all of them
2. In a recent period, Marvel Co. incurred $20,000 of fixed manufacturing overhead and deducted $30,000 of
fixed manufacturing overhead. Marvel Co. must be using
a. absorption costing.
b. variable costing.
c. direct costing.
d. standard costing.
3. Another name for absorption costing is
a. full costing.
b. direct costing.
c. job order costing.
d. fixed costing.
4. If a firm produces more units than it sells, absorption costing, relative to variable costing, will result in
a. higher income and assets.
b. higher income but lower assets.
c. lower income but higher assets.
d. lower income and assets.
5. Under absorption costing, fixed manufacturing overhead could be found in all of the following except the
a. work-in-process account.
b. finished goods inventory account.
c. Cost of Goods Sold.
d. period costs.
6. If a firm uses absorption costing, fixed manufacturing overhead will be included
a. only on the balance sheet.
b. only on the income statement.
c. on both the balance sheet and income statement.
d. on neither the balance sheet nor income statement.
7. Under absorption costing, if sales remain constant from period 1 to period 2, the company will report a
larger income in period 2 when
a. period 2 production exceeds period 1 production.
b. period 1 production exceeds period 2 production.
c. variable production costs are larger in period 2 than period 1.
d. fixed production costs are larger in period 2 than period 1.
8. The FASB requires which of the following to be used in preparation of external financial statements?
a. variable costing
b. standard costing
c. activity-based costing
d. absorption costing
9. An ending inventory valuation on an absorption costing balance sheet would
a. sometimes be less than the ending inventory valuation under variable costing.
b. always be less than the ending inventory valuation under variable costing.
c. always be the same as the ending inventory valuation under variable costing.
d. always be greater than or equal to the ending inventory valuation under variable costing.
10. Absorption costing differs from variable costing in all of the following except
a. treatment of fixed manufacturing overhead.
b. treatment of variable production costs.
c. acceptability for external reporting.
d. arrangement of the income statement.
11. Which of the following is not associated with absorption costing?
a. functional format
b. gross margin
c. period costs
d. contribution margin
12. Unabsorbed fixed overhead costs in an absorption costing system are
a. fixed manufacturing costs not allocated to units produced.
b. variable overhead costs not allocated to units produced.
c. excess variable overhead costs.
d. costs that cannot be controlled.
13. Profit under absorption costing may differ from profit determined under variable costing. How is this
difference calculated?
a. Change in the quantity of all units in inventory times the relevant fixed costs per unit.
b. Change in the quantity of all units produced times the relevant fixed costs per unit.
c. Change in the quantity of all units in inventory times the relevant variable cost per unit.
d. Change in the quantity of all units produced times the relevant variable cost per unit.
14. What factor, related to manufacturing costs, causes the difference in net earnings computed using
absorption costing and net earnings computed using variable costing?
a. Absorption costing considers all costs in the determination of net earnings, whereas variable
costing considers fixed costs to be period costs.
b. Absorption costing allocates fixed overhead costs between cost of goods sold and inventories, and
variable costing considers all fixed costs to be period costs.
c. Absorption costing “inventories” all direct costs, but variable costing considers direct costs to be
period costs.
d. Absorption costing “inventories” all fixed costs for the period in ending finished goods inventory,
but variable costing expenses all fixed costs.
15. The costing system that classifies costs by functional group only is
a. standard costing.
b. job order costing.
c. variable costing.
d. absorption costing.
16. A functional classification of costs would classify “depreciation on office equipment”
as a
a. product cost.
b. general and administrative expense.
c. selling expense.
d. variable cost.
17. The costing system that classifies costs by both functional group and behavior is
a. process costing.
b. job order costing.
c. variable costing.
d. absorption costing.
18. Under variable costing, which of the following are costs that can be inventoried?
a. variable selling and administrative expense
b. variable manufacturing overhead
c. fixed manufacturing overhead
d. fixed selling and administrative expense
19. Consider the following three product costing alternatives: process costing, job order costing, and standard
costing. Which of these can be used in conjunction with variable costing?
a. job order costing
b. standard costing
c. process costing
d. all of them
20. Another name for variable costing is
a. full costing.
b. direct costing.
c. standard costing.
d. adjustable costing.
21. If a firm uses variable costing, fixed manufacturing overhead will be included
a. only on the balance sheet.
b. only on the income statement.
c. on both the balance sheet and income statement.
d. on neither the balance sheet nor income statement.
22. Under variable costing,
a. all product costs are variable.
b. all period costs are variable.
c. all product costs are fixed.
d. product costs are both fixed and variable.
23. How will a favorable volume variance affect net income under each of the following methods?
Absorption Variable
a. reduce no effect
b. reduce increase
c. increase no effect
d. increase reduce
24. Variable costing considers which of the following to be product costs?
Fixed Fixed Variable Variable
Mfg. Costs Selling & Adm. Mfg. Costs Selling & Adm.
a. yes no yes no
b. yes no yes yes
c. no no yes yes
d. no no yes no
25. The variable costing format is often more useful to managers than the absorption costing format because
a. costs are classified by their behavior.
b. costs are always lower.
c. it is required for external reporting.
d. it justifies higher product prices.
26. The difference between the reported income under absorption and variable costing is attributable to the
difference in the
a. income statement formats.
b. treatment of fixed manufacturing overhead.
 c. treatment of variable manufacturing overhead.
d. treatment of variable selling, general, and administrative expenses.
27. Which of the following costs will vary directly with the level of production?
a. total manufacturing costs
b. total period costs
c. variable period costs
d. variable product costs
28. On the variable costing income statement, the difference between the “contribution margin” and “income
before income taxes” is equal to
a. the total variable costs.
b. the Cost of Goods Sold.
c. total fixed costs.
d. the gross margin.
29. For financial reporting to the IRS and other external users, manufacturing overhead costs are
a. deducted in the period that they are incurred.
b. inventoried until the related products are sold.
c. treated like period costs.
d. inventoried until the related products have been completed.
30. In the application of “variable costing” as a cost-allocation process in manufacturing,
a. variable direct costs are treated as period costs.
b. nonvariable indirect manufacturing costs are treated as product costs.
c. variable indirect manufacturing costs are treated as product costs.
d. nonvariable direct costs are treated as product costs.
31. A basic tenet of variable costing is that period costs should be currently expensed. What is the rationale
behind this procedure?
a. Period costs are uncontrollable and should not be charged to a specific product.
b. Period costs are generally immaterial in amount and the cost of assigning the amounts to specific
products would outweigh the benefits.
c. Allocation of period costs is arbitrary at best and could lead to erroneous decision by management.
d. Because period costs will occur whether production occurs, it is improper to allocate these costs to
production and defer a current cost of doing business.
32. Which of the following is a term more descriptive of the type of cost accounting often called “direct
costing”?
a. out-of-pocket costing
b. variable costing
c. relevant costing
d. prime costing
33. What costs are treated as product costs under variable (direct) costing?
a. only direct costs
b. only variable production costs
c. all variable costs
d. all variable and fixed manufacturing costs
34. Which of the following must be known about a production process in order to institute a variable costing
system?
a. the variable and fixed components of all costs related to production
b. the controllable and non-controllable components of all costs related to production
c. standard production rates and times for all elements of production
d. contribution margin and break-even point for all goods in production
35. Why is variable costing not in accordance with generally accepted accounting principles?
a. Fixed manufacturing costs are treated as period costs under variable costing.
b. Variable costing procedures are not well known in industry.
c. Net earnings are always overstated when using variable costing procedures.
d. Variable costing ignores the concept of lower of cost or market when valuing inventory.
36. Which of the following is an argument against the use of direct (variable) costing?
a. Absorption costing overstates the balance sheet value of inventories.
b. Variable factory overhead is a period cost.
c. Fixed manufacturing overhead is difficult to allocate properly.
d. Fixed manufacturing overhead is necessary for the production of a product.
37. Which of the following statements is true for a firm that uses variable costing?
a. The cost of a unit of product changes because of changes in the number of units manufactured.
b. Profits fluctuate with sales.
c. An idle facility variation is calculated.
d. None of the above.
38. An income statement is prepared as an internal report. Under which of the following methods would the
term contribution margin appear?
Absorption costing Variable costing
a. no no
b. no yes
c. yes no
d. yes yes
39. In an income statement prepared as an internal report using the variable costing method, fixed
manufacturing overhead would
a. not be used.
 b. be used in the computation of operating income but not in the computation of the contribution
margin.
c. be used in the computation of the contribution margin.
d. be treated the same as variable manufacturing overhead.
40. Variable costing has an advantage over absorption costing for which of the following purposes?
a. analysis of profitability of products, territories, and other segments of a business
b. determining the CVP relationship among the major factors of selling price, sales mix, and sales
volume
c. minimizing the effects of inventory changes on net income
d. all of the above
41. In the variable costing income statement, which line separates the variable and fixed costs?
a. selling expenses
b. general and administrative expense
c. product contribution margin
d. total contribution margin
42. A firm presently has total sales of $100,000. If its sales rise, its
a. net income based on variable costing will go up more than its net income based on absorption
costing.
b. net income based on absorption costing will go up more than its net income based on variable
costing.
c. fixed costs will also rise.
d. per unit variable costs will rise.
43. CVP analysis requires costs to be categorized as
a. either fixed or variable.
b. fixed, mixed, or variable.
c. product or period.
d. standard or actual.
44. With respect to fixed costs, CVP analysis assumes total fixed costs
a. per unit remain constant as volume changes.
b. remain constant from one period to the next.
c. vary directly with volume.
d. remain constant across changes in volume.
45. CVP analysis relies on the assumptions that costs are either strictly fixed or strictly variable. Consistent
with these assumptions, as volume decreases total
a. fixed costs decrease.
b. variable costs remain constant.
c. costs decrease.
d. costs remain constant.
46. According to CVP analysis, a company could never incur a loss that exceeded its total
a. variable costs.
b. fixed costs.
c. costs.
d. contribution margin.
47. CVP analysis is based on concepts from
a. standard costing.
b. variable costing.
c. job order costing.
d. process costing.
48. Cost-volume-profit analysis is a technique available to management to understand better the
interrelationships of several factors that affect a firm’s profit. As with many such techniques, the
accountant oversimplifies the real world by making assumptions. Which of the following is not a major
assumption underlying CVP analysis?
a. All costs incurred by a firm can be separated into their fixed and variable components.
b. The product selling price per unit is constant at all volume levels.
c. Operating efficiency and employee productivity are constant at all volume levels.
d. For multi-product situations, the sales mix can vary at all volume levels.
49. In CVP analysis, linear functions are assumed for
a. contribution margin per unit.
b. fixed cost per unit.
c. total costs per unit.
d. all of the above.
50. Which of the following factors is involved in studying cost-volume-profit relationships?
a. product mix
b. variable costs
c. fixed costs
d. all of the above