Name:_________________________________________________ Score:__________

1. To apply direct costing method it is necessary that you know

A. Standard production rate and times of production elements
B. Contribution margin and break even point in production
C. Variable and fixed cost related to production
D. Controllable and uncontrollable cost of production

2. Which of the following is NOT an advantage of using variable costing for internal reporting
purposes?
A. Fixed costs are reported at incurred values, not absorbed values, thus improving control
over those costs.
B. Profits are directly influenced by changes in sales volume.
C. The impact of fixed costs on profits is emphasized.
D. Total costs may be overlooked when evaluating profits.

3. Under variable costing,

A. all product costs are variable. C. all product costs are fixed
B. all period costs are variable. D. product costs are both fixed and variable.

4. Calculating income under variable costing does NOT require knowing

A. unit sales. C. selling price.
B. unit variable manufacturing costs. D. unit production.
5. Under absorption costing, fixed manufacturing overhead could be found in all of the following
except the
A. work-in-process account. C. Cost of Goods Sold.
B. finished goods inventory account. D. period costs.
6. 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.
7. 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 number of units
manufactured.
B. Profits fluctuate with sales.
C. An idle facility variation is calculated.
D. Product costs include variable administrative costs.
8. MNO Products, Inc. planned and actually manufactured 200,000 units of its single product in
2000, its first year of operations. Variable manufacturing costs were P30 per unit of product.
Planned and actual fixed manufacturing costs were P600,000, and marketing and
administrative costs totaled P400,000 in 2000. MNO sold 120,000 units of product in 2000
at a selling price of P40 per unit. What is the cost of the ending inventory assuming variable
costing is used?
 A. P2,400,000 B. P2,750,000 C. P2,250,000 D. P2,640,000
9. The total production cost for 20,000 units was P21,000 and the total production cost for
making 50,000 units was P34,000. Once production exceeds 25,000 units, additional fixed
costs of P4,000 were incurred. The full production cost per unit for making 30,000 units is:
A. P0.30 B. P0.68 C. P0.84 D. P0.93
10. Z Corp. incurred the following costs in 2001 (its first year of operations) based on production
of 10,000 units:
Direct material $5 per unit
Direct labor $3 per unit
Variable product costs $2 per unit
Fixed product costs (in total) $100,000
When Z Corp. prepared its 2001 financial statements, its Cost of Goods Sold was listed at
$100,000. Based on this information, which of the following statements must be true:
A. Z Corp. sold all 10,000 units that it produced.
B. Z Corp. sold 5,000 units.
C. Z Corp. had a very profitable year.
D. From the information given, one cannot tell whether Z Corp.'s financial statements were
prepared based on variable or absorption costing.
11. Fleet, Inc. manufactured 700 units of Product A, a new product, during the year. Product As
variable and fixed manufacturing costs per unit were $6.00 and $2.00 respectively. The
inventory of Product A on December 31, consisted of 100 units. There was no inventory of
Product A on January 1. What would be the change in the dollar amount of inventory on
December 31 if variable costing were used instead of absorption costing?
A. $800 decrease. B. $200 decrease. C. $0 D. $200 increase.
12. A company has the following cost data:

Fixed manufacturing costs $2,000

Fixed selling, general, and administrative costs 1,000
Variable selling costs per unit sold 1
Variable manufacturing costs per unit 2

Beginning inventory 0 units

Production 100 units
Sales 90units at $40 per unit
Variable and absorption-cost net incomes are:
A. $320 variable, $520 absorption C. $520 variable, $320 absorption
B. $330 variable, $530 absorption D. $530 variable, $330 absorption

Questions 13 through 15 are based on the following information.

The following information is available for X Co. for its first year of operations:
Sales in units 5,000
Production in units 8,000
Manufacturing costs:
Direct labor $3 per unit
Direct material 5 per unit
Variable overhead 1 per unit
 Fixed overhead $100,000
Net income (absorption method) $30,000
Sales price per unit $40

13.What would X Co. have reported as its income before income taxes if it had used variable
costing?
A. $30,000 B. ($7,500) C. $67,500 D. ($30,000)

14.What was the total amount of SG&A expense incurred by X Co.?

A. $30,000 B. $62,500 C. $6,000 D. $36,000

15.Based on variable costing, what would X Co. show as the value of its ending inventory?
A. $120,000 B.$64,500 C. $27,000 D. $24,000