MCQ for Absorption and Marginal Costing

Contribution margin is calculated as:

• Total sales revenue - Total fixed costs

• Total sales revenue - Total variable costs

• Total variable costs - Total fixed costs

• Total sales revenue - Total variable costs - Total fixed costs

Which of the following is true about variable costing?

• It treats fixed manufacturing overhead as a product cost

• It treats fixed manufacturing overhead as a period cost

• It is not suitable for decision making

• It is also known as direct costing

Which of the following is a disadvantage of absorption costing?

• It can lead to overproduction

• It is not accepted by external stakeholders

• It is not suitable for decision making

• It provides a better matching of costs and revenues

What would be the profit for next period using marginal costing?

• $25,000

• $27,000

• $45,000

• $47,000

When sales and production units are same, then the profit under.....

• marginal costing is higher than that of absorption costing

• marginal costing is lower than that of absorption costing

• marginal costing is equal to that of absorption costing

• none of the above

A company manufactures a single product with the following costs ($ per unit):

Prime costs 24.60

Variable production overheads 3.10

Fixed production overheads 12.90

Variable non-production overheads 1.40

Fixed non-production overheads 5.80

Production and sales for a period were: Production: 15,100 units Sales: 15,400 units

What is the difference in profit for the period comparing absorption costing with marginal costing?

• Absorption costing $3,870 lower

• Marginal costing $3,870 lower

• Absorption costing $5,610 higher

• Marginal costing $5,610 higher