Absorption and Marginal Costing Questions

Under absorption costing, which costs are included in inventory valuation?

• Only variable production costs

• Variable and fixed production costs

• Only fixed production costs

• Variable production costs and all non-production costs

How are fixed manufacturing overhead costs treated under marginal (variable) costing?

• They are included in inventory valuation

• They are expensed in full in the period incurred

• They are allocated based on the number of units sold

• They are deferred until the products are sold

If inventory levels increase during a period, which costing method will report higher profit?

• Absorption costing

• Variable costing

• Both methods will report the same profit

• It depends on the sales volume

If inventory levels decrease, what happens to the profit reported under absorption costing compared to variable costing?

• Absorption costing will report higher profit

• Absorption costing will report lower profit (Correct Answer)

• Both methods will report the same profit

• Profit will not be affected by inventory changes

How is the cost of sales determined under absorption costing?

• It includes only variable production costs

• It includes both variable and fixed production costs (Correct Answer)

• It excludes all manufacturing overhead costs

• It is based only on non-production costs

How is closing inventory valued under marginal (variable) costing?

• At full production cost

• At marginal (variable) production cost only

• At the historical purchase price

• At market value

Which of the following statements is true regarding fixed manufacturing overhead under absorption costing?

• It is treated as a period cost and expensed in full

• It is absorbed into inventory valuation

• It is never allocated to units produced

• It is included only in non-production costs

• $20,000

• $60,000

• $80,000

• Cannot be determined

Which of the following is included in the income statement under both absorption costing and marginal costing?

• Fixed production overhead

• Gross profit

• Contribution margin

• Fixed cost allocation to inventory

• $50,000

• $55,000

• $45,000

• $60,000