Chap 1 :Absorption costing

1. 1. What is Absorption Costing?

a) A method of costing that includes only direct costs in the product cost

b) A method of costing that includes all costs associated with the production process

c) A method of costing that includes only variable manufacturing costs

d) None of the above

• a

• b

• c

• d

1. 2. Which of the following is considered a product cost in absorption costing?

a) Rent for the office

b) Sales commissions

c) Direct materials

d)Marketing expenses

• a

• b

• c

• d

1. 3. Which of the following is true about period costs in absorption costing?

a) They are directly tied to the production process

b) They include direct labor and direct materials

c) They are all costs not included in product costs

d) They are assigned to cost pools

• a

• b

• c

• d

4. Which of the following best describes fixed manufacturing overhead in absorption costing?

a. Costs that vary with the level of production output

b. Costs that remain constant regardless of production levels

c. Direct costs that can be traced to each unit of product

d. Indirect costs not related to production

• a

• b

• c

• d

5. In absorption costing, how is net income affected when production exceeds sales?

a. Net income is higher because more fixed costs are allocated to inventory

b. Net income is lower because more fixed costs are allocated to inventory

c. Net income remains unchanged regardless of production or sales levels

d. Net income is higher because fewer fixed costs are allocated to cost of goods sold

• a

• b

• c

• d

6. What is the key difference between absorption costing and variable costing?

a. In absorption costing, only direct costs are included in product costs

b. In variable costing, fixed manufacturing overhead is treated as a period cost

c. In absorption costing, variable manufacturing overhead is not included in product costs

d. In variable costing, all manufacturing costs are included in product cos

• a

• b

• c

• d

7. Which statement is true regarding inventory valuation under absorption costing?

a. Inventory is valued higher compared to variable costing

b. Inventory is valued lower compared to variable costing

c. Inventory valuation is not affected by the costing method

d. Inventory includes only variable costs

• a

• b

• c

• d

8. What impact does absorption costing have on the break-even point?

a. Break-even point is higher compared to variable costing

b. Break-even point is lower compared to variable costing

c. Break-even point is not affected by the costing method

d. Break-even point cannot be calculated under absorption costing

• a

• b

• c

• d

9. Under absorption costing, which of the following costs is NOT included in the cost of goods sold?

a. Fixed manufacturing overhead

b. Variable manufacturing overhead

c. Direct materials

d. Selling and administrative expenses

• a

• b

• c

• d