Variable and absorption costing

Multiple choice questions (MCQs)

Your answer is incorrect. The correct answer is “Fixed manufacturing overhead cost” (option 4).

Your answer is incorrect. The correct answer is “internal management” (option 2).

Your answer is incorrect. The correct answer is “direct/marginal costing” (option 1).

Your answer is incorrect. The correct answer is “full costing” (option 3).

Your answer is incorrect. The correct answer is “all of the above” (option 4).

Your answer is incorrect. The correct answer is “$12” (option 4).

Computation:

Variable cost per unit = Direct materials per unit + Direct labor per unit + Variable manufacturing overhead per unit
= $5 + $4 + $3
= $12

Fixed manufacturing overhead is not included while computing unit product cost under variable costing system.

Your answer is incorrect. The correct answer is “change in inventory” (option 4).

Your answer is incorrect. The correct answer is “always higher than variable costing” (option 2).

Your answer is incorrect. The correct answer is “always lower than variable costing” (option 1).

Your answer is incorrect. The correct answer is “absorption costing” (option 2).

Your answer is incorrect. The correct answer is “released from inventory” (option 4).

Your answer is incorrect. The correct answer is “contribution margin income statement” (option 1).

Your answer is incorrect. The correct answer is “$30” (option 2).

Computation:

Unit product cost under absorption costing = Direct materials + Direct labor + Variable overhead + Fixed overhead
= $8 + $12 + $6 + $4
= $30

Your answer is incorrect. The correct answer is “profit center” (option 3).

Your answer is incorrect. The correct answer is “the change in production does not affect net operating income under variable costing system” (option 1).

Your answer is incorrect. The correct answer is “production is equal to sales” (option 3).

Your answer is incorrect. The correct answer is “direct materials, direct labor, and variable overhead” (option 2).

Your answer is incorrect. The correct answer is “direct materials, direct labor, variable overhead, and fixed overhead” (option 1).

Your answer is incorrect. The correct answer is “$35,000” (option 3).

Computation:

Net operating income under absorption costing = Net operating income under variable costing + Fixed manufacturing overhead deferred in inventory
= $25,000 + $10,000*
= $35,000

*Fixed manufacturing overhead deferred in inventory = Increase in inventory × Fixed manufacturing overhead per unit
= 2,000 units × ($50,000/10,000 units)
= 2,000 units × $5
= $10,000

When inventory increases, the fixed manufacturing overhead cost is deferred in inventory under absorption costing system which causes a higher net operating income under absorption costing than variable costing.

Your answer is incorrect. The correct answer is “$30,000” (option 4).

Computation:

Net operating income under absorption costing = Net operating income under variable costing + Fixed manufacturing overhead released from inventory
= $50,000 – $20,000*
= $30,000

*Fixed manufacturing overhead released from inventory = Decrease in inventory × Fixed manufacturing overhead per unit
= 5,000 units × ($100,000/25,000 units)
= 5,000 units × $4
= $20,000

When inventory decreases, the fixed manufacturing overhead cost is released from inventory under absorption costing system which causes a lower net operating income under absorption costing than variable costing.

Your answer is incorrect. The correct answer is “135,000 units” (option 1).

Computation:

Units produced = Units sold + Units in closing inventory – Units in opening inventory
= 150,000 units + 10,000 units – 25,000 units
= 135,000 units

Your answer is incorrect. The correct answer is “45,000 units” (option 3).

Computation:

Units sold = Units produced + Units in opening inventory – Units in closing inventory
= 50,000 units  + 5,000 units – 10,000 units
= 45,000 units

Your answer is incorrect. The correct answer is “$12,000” (option 4).

Computation:

Variable cost of goods sold = Number of units sold × Variable cost of goods sold per unit
= 1,000 units × $12
= $12,000

Your answer is incorrect. The correct answer is “$15,000” (option 2).

Computation:

Net operating income = Contribution margin – Fixed cost
$10,000 = Contribution margin – $5,000
$10,000 + $5,000 = Contribution margin
Contribution margin = $15,000

Your answer is incorrect. The correct answer is “$3,000” (option 1).

Computation:

Net operating income = Contribution margin – Fixed cost
or
Fixed cost = Contribution margin – Net operating income
= $5,000 – $2,000
= $3,000

Your answer is incorrect. The correct answer is “$2,000” (option 3).

Computation:

Net operating income = Sales – Variable cost – fixed cost
$2,000 = $5,000 – Variable cost – $1,000
$2,000 = $4,000 – Variable cost
Variable cost = $4,000 – $2,000
= $2,000