Week 10 (Absorption & variable costing)

Question 1

The 2 general approaches for valuing inventory and cost of goods sold

Answer 1

1. absorption costing
2. variable costing

Question 2

Product costs of absorption costing

Answer 2

1. direct materials
2. direct labor
3. variable manufacturing overhead
4. fixed manufacturing overhead

Question 3

Period costs of absorption costing

Answer 3

1. variable s&a expenses
2. fixed s&a expenses

Question 4

Product costs of variable costing

Answer 4

1. direct materials
2. direct labor
3. variable manufacturing overhead

Question 5

Period costs of variable costing

Answer 5

1. fixed manufacturing overhead
2. variable s&a expenses
3. fixed s&a expenses

Question 6

how do absorption costing and variable costing differ

Answer 6

different treatment of fixed overhead

Question 7

fixed overhead in absorption costing is a

Answer 7

product costs

Question 8

fixed overhead in variable costing is a

Answer 8

period costs

Question 9

• required by GAAP for EXTERNAL financial reporting (income statements & balance sheets)
• must be used when filing income tax returns
• uses a traditional income statement format (sales - cogs = gp - s&a expenses = ni

Answer 9

absorption costing

Question 10

• preferred by managers for decision making
• consistent with cost volume profit analysis bc all costs on the income statements are either variable or fixed
• uses a contribution income statement format (sales - variable costs = cm - fixed costs = ni)

Answer 10

variable costing