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1. Under variable costing, all variable costs are treated as product costs.
2. Under variable costing, fixed manufacturing overhead cost is treated as a product cost.
3. The unit product cost under absorption costing does not include fixed manufacturing
overhead cost.
4. Variable manufacturing overhead costs are treated as period costs under both absorption
and variable costing.
5. When reconciling variable costing and absorption costing net operating income, fixed
manufacturing overhead costs deferred in inventory under absorption costing should be added to
variable costing net operating income to arrive at the absorption costing net operating income.
6. When production is less than sales for the period, absorption costing net operating income
will generally be less than variable costing net operating income.
7. Absorption costing is more compatible with cost-volume-profit analysis than is variable
costing.
8. Contribution margin and segment margin mean the same thing.
9. Assuming that a segment has both variable expenses and traceable fixed expenses, an
increase in sales should increase profits by an amount equal to the sales times the segment
margin ratio.
10. The salary of the treasurer of a corporation is an example of a common cost which
normally cannot be traced to product segments.
11. The salary paid to a store manager is a traceable fixed expense of the store.
12. Segmented statements for internal use should be prepared in the contribution format.
13. Fixed costs that are traceable to a segment may become common if the segment is
divided into smaller units.
14. The contribution margin is viewed as a better gauge of the long run profitability of a
segment than the segment margin.
15. In responsibility accounting, each segment in an organization should be charged with the
costs for which it is responsible and over which it has control plus its share of common
organizational costs.
16. The contribution margin tells us what happens to profits as volume changes if a segment's
capacity and fixed costs change as well.
17. Only those costs that would disappear over time if a segment were eliminated should be
considered traceable costs of the segment.
18. In segment reporting, sales dollars is usually an appropriate allocation base for selling,
general, and administrative expenses.
19. A segment is any portion or activity of an organization about which a manager seeks
revenue, cost, or profit data.
20. Routsong Company had the following sales and production data for the past four years:
Selling price per unit, variable cost per unit, and total fixed cost are the same in each year. Which
of the following statements is not correct?
21. Would the following costs be classified as product or period costs under variable costing
at a retail clothing store?
22. Fixed manufacturing overhead is included in product costs under:
23. Which of the following are considered to be product costs under variable costing?
I. Variable manufacturing overhead.
II. Fixed manufacturing overhead.
III. Selling and administrative expenses.
24. Which of the following are considered to be product costs under absorption costing?
I. Variable manufacturing overhead.
II. Fixed manufacturing overhead.
III. Selling and administrative expenses.
25. Under variable costing, costs that are treated as period costs include:
26. Selling and administrative expenses are considered to be:
27. A portion of the total fixed manufacturing overhead cost incurred during a period may:
28. A company using lean production methods likely would show approximately the same net
operating income under both absorption and variable costing because:
29. Dull Corporation has been producing and selling electric razors for the past ten years.
Shown below are the actual net operating incomes for the last three years of operations at Dull:
Dull Corporation's cost structure and selling price has not changed during its ten years of
operations. Based on the information presented above, which of the following statements are
true?
30. Net operating income reported under absorption costing will exceed net operating income
reported under variable costing for a given period if:
31. If the number of units produced exceeds the number of units sold, then net operating
income under absorption costing will:
32. Over an extended period of time in which the final ending inventories are zero, the
accumulated net operating income figures reported under absorption costing will be:
33. In an income statement segmented by product line, a fixed expense that cannot be
allocated among product lines on a cause-and-effect basis should be:
34. A common cost that should not be assigned to a particular product on a segmented
income statement is:
35. All other things being equal, if a division's traceable fixed expenses increase:
36. All other things equal, if a division's traceable fixed expenses decrease:
37. Segment margin is sales minus:
38. Clayton Company produces a single product. Last year, the company's variable
production costs totaled $8,000 and its fixed manufacturing overhead costs totaled $4,800. The
company produced 4,000 units during the year and sold 3,600 units. Assuming no units in the
beginning inventory:
