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CHAPTER 9 (ONLY PAGES 298-312) THIS EXCLUDES LEARNING OBJECTIVES 5-7 INVENTORY COSTING AND CAPACITY ANALYSIS MULTIPLE CHOICE Direct manufacturing costs are inventoried when using variable costing. Direct manufacturing costs and fixed manufacturing costs are inventoried when using absorption costing. Absorption costing is required for GAAP, external reporting to shareholders, and income tax reporting. Absorption costing includes fixed manufacturing overhead as an inventoriable cost. Variable costing treats direct manufacturing costs as a product cost. Variable costing, absorption costing, and throughput costing methods expense variable marketing costs in the period incurred. Absorption costing method includes fixed manufacturing overhead costs as inventoriable costs. Variable costing, absorption costing, throughput costing methods expense direct material costs as COGS. Absorption costing method is required for tax reporting purposes. Variable costing regards fixed manufacturing overhead as a period cost. The only difference between variable and absorption costing is the expensing of fixed manufacturing costs. Absorption costing is required by GAAP for external financial reporting. The contribution-margin format of the income statement highlights the lump sum of fixed manufacturing costs. The gross-margin format of the income statement distinguishes between manufacturing and nonmanufacturing costs. Variable manufacturing costs and variable marketing costs are subtracted from sales to calculate contribution margin. Variable manufacturing costs and fixed manufacturing costs are subtracted from sales to calculate gross margin. An unfavorable production-volume variance occurs when the denominator level exceeds production. If the unit level of inventory increases during an accounting period, then more operating income will be reported under absorption costing than variable costing. The difference between operating incomes under variable costing and absorption costing centers on how to account for fixed manufacturing costs. One possible means of determining the difference between operating incomes for absorption costing and variable costing is by subtracting fixed manufacturing overhead in beginning inventory from fixed manufacturing overhead in ending inventory. When comparing the operating incomes between absorption costing and variable costing, and beginning finished inventory exceeds finished inventory, it may be assumed that variable costing operating income exceeds absorption costing operating income. Absorption costing allocates fixed manufacturing overhead to actual units produced during the period.... View Full Document

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