MAS.M-1415.Variable Costing.

MC

MULTIPLE CHOICE QUESTIONS

1. In absorption costing, as contrasted with direct costing, the following are absorbed into
inventory.
A. Only the variable manufacturing overhead.
B. All the elements of fixed and variable manufacturing overhead.
C. Only the fixed manufacturing overhead.
D. Neither fixed nor variable manufacturing overhead.

2. Which of the following is a term more descriptive of the type of cost accounting often called
direct costing.
A. Relevant Costing C. Variable Costing
B. Out-of-pocket costing D. Prime Costing

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

A. Might encourage managers to emphasize the short term at the expense of the long term.
B. Is not acceptable for product line segmented reporting
C. Does not reflect cost-volume-profit relationships.
D. Overstate inventories

4. Variable costing considers which of the following product costs?

Fixed Fixed Variable Variable
Mfg. Selling & Mfg. Selling &
Costs Adm. Costs Adm.
A. no no yes no
B. yes no yes no
C. no no yes yes
D. Yes no yes yes

5. Inventory under the variable costing includes

A. Direct materials cost, direct labor cost, but no factory overhead cost.
B. Direct materials cost, direct labor cost, and variable factory overhead.
C. Prime cost but not conversion cost.
D. Prime cost and all conversion cost.

6. If production is greater than sales (units), then absorption costing net income will generally be
A. Equal to direct costing net income.
B. Greater than direct costing net income
C. Less than direct costing net income.
D. Additional data is needed to be able to answer.
7. Which of the following statements is correct?
A. When production is lower than sales, variable costing net income is lower than absorption
costing net income.
B. When production is higher than sales, absorption costing net income is lower than variable
costing net income.
C. If all the products manufactured during the period are sold in that period, variable costing
net income is equal to absorption costing net income.
D. When production and sales level are equal, variable costing net income is lower than
absorption costing net income.

8. An unfavorable volume variance means that

A. Actual output was less than the level used to set the standard fixed cost.
B. Cost control was probably poor.
C. Absorption costing income is lower than variable costing income.
D. Actual output was more than the level used to set the standard fixed cost.

9. Normal costing differs from actual costing in treating

A. Direct labor and overhead
B. Materials, direct labor, and overhead
C. Materials and direct labor
D. Overhead

10. Under absorption costing, if sales remain constant from period 1 to period 1, the company will
report a larger income in period 2 when
A. Variable production costs are larger in period 2 than period 1
B. Period 2 production exceeds period 1 production
C. Period 1 production exceeds period 2 production
D. Fixed production costs are larger in period 2 than period 1

11. Absorption costing differs from variable costing in all of the following except
A. Acceptability for external repoting
B. Treatment of fixed manufacturing overhead
C. Treatment of variable production costs.
D. Arrangement of the income statement.
12. Variable costing considers which of the following to be product costs?
Fixed Fixed Variable Variable
Mfg. Selling & Mfg. Selling &
Costs Adm. Costs Adm.

A. no no yes yes
B. yes no yes no
C. yes no yes yes
D. no no yes no

13. The variable costing method ordinarily includes in product costs the following:
A. Prime cost but not conversion cost.
B. Direct materials cost, direct labor cost, but no manufacturing overhead cost.
C. Direct materials cost, direct labor cost, and variable manufacturing overhead cost.
D. Prime cost and all conversion cost.

14. Net income determined using full absorption costing can be reconciled to net income
determined using variable costing by computing the difference between them.
A. Gross margin (absorption costing method) and contribution margin (variable costing
method).
B. Fixed manufacturing overhead costs deferred in or released from inventories.
C. Inventoried discretionary costs in the beginning and ending inventory.
D. Sales as recorded under the variable costing method and sales as recorded under the
absorption costing method.

15. Samar Industries manufactures a single product. Variable production costs are P20 and fixed
production costs are P300,000. 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. P20,000
B. P30,000
C. 0
D. Some other number

16. Tacloban Industries manufactures a single product. Variable production costs are P20 and fixed
production costs are P300,000. 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. P735,000
B. P400,000
C. P420,000
D. Some other number.
Question 17 and 18 are based on the following information. The excerpt presented below was taken
from Smurf Company’s records for the fiscal year ended November 30:
Direct materials used P300,000
Direct labor 100,000
Variable factory overhead 50,000
Fixed factory overhead 80,000
Selling and administrative cost - variable 40,000
Selling and administrative cost – fixed 20,000

17. If Smurf Company uses variable costing, the inventoriable costs for the current fiscal year are
A. 530,000 C. 450,000
B. 400,000 D. 490,000

18. Using absorption (full) costing, inventoriable costs are

A. P530,000 C. 450,000
B. P400,000 D. 590,000

19. Compute for the inventory under the direct costing method using the data given: units unsold at
the end of the period 45,000; raw materials used, P6.00 per unit; raw materials inventory,
beginning, P5.90 per unit; direct labor, P3.00 per unit; variable overhead per unit, P2.00 per
unit; indirect labor for the month, P33,750. Total fixed costs, P67,500.
A. P17.45 C. P11.00
B. P16.90 D. P19.15

20. Care Company’s 2013 fixed manufacturing overhead cost totaled P100,000 and variable seliing
costs totaled P80,000. Under direct costing, how should these costs be classified?
Period Cost Product Cost
A. P 0 P 180,000
B. P 80,000 P 100,000
C. P 100,000 P 80,000
D. P 180,000 P 0
21. With a production of 200,000 units of product A during the month of June, Bucayao Corporation
had incurred costs as follows:
Direct Materials P 200,000
Direct labor used 135,000
Manufacturing overhead:
Variable 75,000
Fixed 90,000
Selling and administrative expenses:
Variable 30,000
Fixed 85,000
Total P 615,000
Under absorption costing, the unit cost of product A was:
A. P 2.05 C. P 2.50
B. P 2.20 D. P 3.25
 22. LY & Company completed its first year of operations during which time the following
information were generated:
Total units produced 100,000
Total units sold 80,000 at 100 per unit
Work in process ending inventory cost
Fixed cost Factory Overhead P 1.2 million
Selling and administrative P 0.7 million
Per unit variable cost
Raw materials P 20.00
Direct labor 12.50
Factory Overhead 7.50
Selling and administrative 10.00
If the company used the variable (direct) costing method, the operating income would be
A. P 3,040,000 C. P 4,000,000
B. P 2,100,000 D. P 2,480,000

23. CERTS for life, Inc., manufactures a single product for which the costs and selling prices are:
Variable production costs P 50 per unit
Selling price P 125 per unit
Fixed production overhead P 200,000 per quarter
Fixed selling and administrative overhead P 80,000 per quarter
Normal capacity is 20,000 units per quarter. Production in the first quarter was 19,000 units and
sales volume was 16,000 units. No opening inventory for the quarter. The absorption costing
profit for the quarter was:
A. P 920,000 C. P 960,000
B. P 950,000 D. P 970,000

Questions 24 and 25 are based on the following information: The following operating data are available
from the records of Sheena Company for the month of January 2013:
Sales (P70 per unit) P 210,000
Direct materials 59,200
Direct labor 48,000
Manufacturing overhead:
Fixed 36,080
Variable 24,000
Marketing and general expenses:
Fixed 11,000
Variable 5% of sales
Production in units 3,200 units
Beginning inventory none
24. The ending finished goods inventory under absorption costing would be:
A. P 14,280 C. P 12,096
B. P 16,968 D P 16,072

25. The net income for the month under the variable costing method would be:
A. P 32,420 C. P 23,320
B. P 25,500 D. P 22,420
Questions 26 and 27 are based on the following information. The books of Mariposa Company
pertaining to the year ended December 31, 2013 operations, showed the following figures relating to
product A:
Beginning inventory-FG and WIP none
No. of units produced 40,000
No. of units sold at 15 32,500
Direct materials used P 177,500
Direct labor used P 85,000
Fixed P 110,000
Variable 61,500_ P 171,500
Fixed admin expenses P 30,000
26. Under variable costing, what would be the finished goods inventory as at December 31, 2013?
A. P 81,375.00 C. P 87,000.00
B. P 60,750.00 D. P 49,218.75

27. Which costing method, variable or absorption costing, would show a higher operating income
for 2013 and by how much?
A. Variable by P 20,625 C. variable by P 26,250
B. Absorption by P 20,625 D. absorption by P 26,250

28. During the year 2013, Good Health Corporation manufactured 70,000 units of product A, a new
product. Only 65,000 units were sold during the year. There was no beginning inventory.
Manufacturing cost per unit was P20.00 variable and P50.00 fixed. What would be the effect in
net income if absorption costing is used instead of variable costing?
A. Profit is P 100,000 lower C. Profit is P250,000 higher
B. Profit is P 250,000 lower D. None of the above.

Use the following information for questions 29 and 30: The following information has been extracted
from P Co.’s financial records for its first year of operations:
Units produced, 10,000
Units sold, 7,000
Variable costs per unit:
Direct material, P 8
Direct labor, 9
Manufacturing overhead, 3
SG&A, 4
Fixed costs:
Manufacturing overhead, P 70,000
SG&A, 30,000

29. Based on absorption costing, the Cost of Goods Manufactured for P Co.’s first year would be
A. P 200,000 C. P 300,000
B. P 270,000 D. P 210,000

30. Based on absorption costing, what amount of period costs will P Co. Deduct?
A. P 70,000 C. P 30,000
B. P 79,000 D. P 58,000
31. Vladen Inc. reported the following data for 2013:
Actual hours 120,000
Denominator hours 150,000
Standard hours allowed for output 140,000
Fixed predetermined overhead rate P 6 per hour
Variable predetermined Over Head rate P 4 per hour

TYD’s 2012 volume variance:

A. No volume variance C. P 60,000 favorable
B. P 60,000 which is neither favorable nor underapplied D. P 60,000 underapplied

32. Eastern Co. has total budgeted fixed costs of P150,000. Actual production of 39,000 units
resulted in a P 6,000 favorable volume variance. What normal capacity was used to determine
the fixed overhead rate?
A. P 40,560 C. P 37,500
B. P 33,000 D. Cannot be determined without further information

33. Calculating income under variable costing does NOT require knowing
A. Unit sales C. unit production
B. Selling price D. unit variable manufacturing costs.