Which of the following statements is true variable costing treats fixed overhead as a period cost

Q1. Some fixed manufacturing costs of the current period are deferred to future periods through

ending inventory under variable costing.

True

False

Q2. If normal costing is used when preparing an absorption costing income statement, the fixed

manufacturing overhead assigned to inventory is based on a predetermined fixed manufacturing

overhead rate.

True

False

Q3. Accounting for fixed manufacturing overhead is the only difference between variable and

absorption costing.

True

False

Q4. Under absorption costing, the value of a unit of a product includes all product costs.

True

False

Q5. The use of variable costing is consistent with cost-volume-profit analysis.

True

False

Q6. Variable costing is the approach used for external reporting under generally accepted

accounting principles.

True

False

Q7. Net income under variable costing is unaffected by changes in production levels.

True

False

Q8. Throughput costing is also called super absorption costing.

True

False

Revised Summer 2015

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VARIABLE COSTING

Key Terms and Concepts to Know

Variable vs. Absorption Costing

 Absorption Costing is required by GAAP for external reporting purposes. This is the

costing method used for the traditional income statement.

 Absorption costing classifies costs based on their function: product or period costs.

 Variable Costing is often used for internal decision-making. This is the costing

method used for the contribution format income statement.

 Variable costing classifies costs based on their behavior when the activity level

changes: variable or fixed costs.

 The difference between the two methods is how they account for fixed

manufacturing overhead.

Product Costs:

 Product costs are the manufacturing costs incurred to produce the products to be

sold.

 Product costs under absorption costing include both manufacturing costs.

 Product costs under variable costing include only variable manufacturing costs.

 Absorption costing accounts for fixed manufacturing overhead as a product cost.

 Variable costing accounts for fixed manufacturing overhead as a period cost.

Period Costs:

 Period costs are the non-manufacturing costs incurred to operate the company.

 Period costs are accounted for as expenses in the period incurred.

 Absorption costing accounts for both variable and fixed non-manufacturing costs,

i.e., selling and administrative costs as period costs.

 Variable costing accounts for both variable and fixed non-manufacturing costs,

i.e., selling and administrative costs, and fixed manufacturing overhead as period

costs.

Does variable costing treats fixed overhead as a period cost?

Which of the following is not a product cost under variable costing?

Which of the following costing methods charges all manufacturing costs to its products?

Which of the following statements is true absorption costing treats?