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Chapter 07 - Chapter 7 Variable Costing A Tool for...

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Chapter 7 Variable Costing: A Tool for Management Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-5 True/False Questions 1. Under variable costing, only variable production costs are treated as product costs. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy 2. Under variable costing, variable selling and administrative costs are included in product costs. Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy 3. Absorption costing treats all manufacturing costs as product costs. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy 4. In the preparation of financial statements using variable costing, fixed manufacturing overhead is treated as a period cost. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy 5. Absorption costing treats fixed manufacturing overhead as a period cost. Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy 6. When the number of units in work in process and finished goods inventories increase, absorption costing net operating income will typically be greater than variable costing net operating income. Ans: True AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Easy 7. Net operating income computed using absorption costing will always be greater than net operating income computed using variable costing. Ans: False AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy
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Chapter 7 Variable Costing: A Tool for Management 7-6 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 8. When reconciling variable costing and absorption costing net operating income, fixed manufacturing overhead costs released from inventory under absorption costing should be added to variable costing net operating income to arrive at the absorption costing net operating income. Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Medium 9. When production exceeds sales for the period, absorption costing net operating income will exceed variable costing net operating income. Ans: True AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Medium 10. Under variable costing it may be possible to report a profit even if the company sells less than the break-even volume of sales. Ans: False AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Medium 11. Absorption costing net operating income is closer to the net cash flow of a period than is variable costing net operating income. Ans: False AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Medium 12. Variable costing is not permitted for income tax purposes, but it is widely accepted for external financial reports.
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