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WorksheetsAbsorption and Marginal Costing Questions
Total questions: 60
Worksheet time: 30mins
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
If beginning inventory under absorption costing is 80,000andundermarginalcostingitis 60,000, what is the deferred fixed manufacturing overhead in inventory?
$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
If net income under marginal costing is 50,000andthereis 5,000 in fixed manufacturing overhead deferred in inventory, what is the net income under absorption costing?
$50,000
$55,000
$45,000
$60,000
Under absorption costing, when are fixed manufacturing overhead costs expensed?
In the period they are incurred
When the products are sold (Correct Answer)
When the products are produced
When the company pays for them
Which costing method provides a better representation of the cost behavior for decision-making?
Absorption costing
Marginal (variable) costing
Both are equally useful for decision-making
It depends on the company's accounting policy
If a company produces more than it sells, what happens to the reported income under absorption costing?
It is higher than under variable costing
It is lower than under variable costing
It is the same as under variable costing
It depends on the total cost of production
What is the key reason absorption costing reports higher profits when inventory levels increase?
Fixed production costs are fully expensed
Fixed production costs are deferred in inventory
Selling and administrative costs are lower
Fixed costs decrease as production increases
Under marginal (variable) costing, which of the following statements is true?
Fixed costs are allocated to inventory
Profit is affected by changes in production volume
Fixed costs are treated as period costs
Fixed costs are included in contribution margin
If closing inventory increases by 2,000 units and fixed overhead per unit is $5, how much fixed cost is deferred under absorption costing?
$2,000
$5,000
$10,000
Cannot be determined
Which of the following statements best describes the impact of decreasing inventory levels under absorption costing?
Profit is unaffected
More fixed costs are expensed, reducing profit
Fixed costs are carried forward to the next period
Variable costs increase
If beginning inventory is 40,000undermarginalcostingand 50,000 under absorption costing, what does the $10,000 difference represent?
Deferred variable costs
Deferred fixed manufacturing overhead
Non-production costs
Selling expenses
What is the main difference between gross profit (absorption costing) and contribution margin (variable costing)?
Gross profit includes fixed manufacturing costs, while contribution margin does not.
Contribution margin includes fixed manufacturing costs, while gross profit does not.
Both include fixed manufacturing costs.
Neither includes fixed manufacturing costs.
If total fixed manufacturing overhead is $120,000 and 20,000 units were produced, what is the fixed overhead per unit under absorption costing?
$4
$6
$8
$10
A company produces 5,000 units and sells 4,000 units in a period. Fixed manufacturing overhead is $60,000 per period. What is the fixed manufacturing overhead cost deferred in inventory under absorption costing?
$10,000
$12,000
$15,000
$20,000
A company uses absorption costing. If beginning inventory is 1,000 units, ending inventory is 800 units, and fixed manufacturing overhead per unit is $8, how much fixed overhead is released from inventory?
$1,200
$1,600
$2,000
$2,400
What is the formula for calculating the total contribution margin?
Sales - (Variable Cost per Unit × Units Sold) - Fixed Costs
Sales - (Total Cost per Unit × Units Sold)
Sales - (Fixed Costs per Unit × Units Sold)
Sales - Total Fixed Costs
A company produces and sells 10,000 units. Fixed costs are 50,000perperiod,andvariablecostperunitis 15. If the selling price is $25 per unit, what is the total contribution margin?
$50,000
$100,000
$150,000
$200,000
If a company sells 6,000 units and has a contribution margin per unit of $5, what is the total contribution margin?
$25,000
$30,000
$35,000
$30,000
A company using absorption costing has the following data: Fixed manufacturing overhead = $100,000 Units produced = 20,000 Units sold = 18,000 What is the amount of fixed manufacturing overhead deferred in inventory?
$5,000
$10,000
$15,000
$20,000
If beginning inventory under absorption costing is 30,000andundervariablecostingitis 22,000, what is the fixed manufacturing overhead in inventory?
$6,000
$8,000
$10,000
$12,000
If absorption costing net income is $70,000 and the fixed overhead deferred in inventory is $5,000, what is the net income under variable costing?
$60,000
$65,000
$70,000
$75,000
A company produces 12,000 units and sells 10,000 units. The fixed overhead cost for the period is $48,000. What is the fixed overhead per unit under absorption costing?
$2.50
$3.50
$4.00
$5.00
What is the primary reason absorption costing provides a smoother income trend over time?
It allocates fixed overhead costs to products, smoothing out fluctuations in production levels.
It only considers variable costs, ignoring fixed costs.
It uses a cash basis of accounting, recognizing expenses when paid.
It matches revenues with expenses in the period they are incurred.
Which costing method allocates fixed production costs to inventory, deferring some costs to future periods?
It allocates fixed production costs to inventory, deferring some costs to future periods
It expenses all costs in the current period
It only considers variable costs
It provides more detailed financial analysis
Which costing method is more suitable for short-term decision-making?
Absorption costing
Marginal (variable) costing
Both are equally useful
It depends on the industry
Why does marginal costing result in fluctuating income?
Fixed costs are included in inventory valuation
Fixed costs are expensed in full in the period they are incurred
Variable costs fluctuate significantly
Profit is independent of inventory changes
In the long run, how do total profits compare between marginal costing and absorption costing?
Marginal costing profits are always higher
Absorption costing profits are always higher
Total profit remains the same under both methods
The method used will permanently affect profits
Which of the following is an advantage of absorption costing?
Better for short-term decision-making
More accurate reflection of production costs
Does not include fixed costs in product valuation
Leads to greater profit in all cases
Which costing method is most appropriate when analyzing the profitability of a single product in the short term?
Absorption costing
Marginal costing
Both are equally effective
Neither is useful for short-term decisions
If a company wants to minimize fluctuations in reported profit due to inventory changes, which costing method should it use?
Marginal costing
Absorption costing
Both will result in fluctuations
It depends on the level of fixed costs
When inventory levels increase, how does absorption costing affect net income compared to marginal costing?
Absorption costing results in higher net income
Absorption costing results in lower net income
Both methods show the same net income
Net income under absorption costing is unpredictable
A company incurs $200,000 in fixed costs per year. It produces 50,000 units but sells only 45,000 units. Under absorption costing, what happens to the fixed costs?
All fixed costs are expensed in the current period
A portion of the fixed costs is included in inventory and deferred
Fixed costs do not affect inventory valuation
Fixed costs are only recognized when cash is paid
Which of the following is a disadvantage of marginal costing?
A. It leads to fluctuations in profit due to immediate expensing of fixed costs
It defers fixed costs to future periods
It is not useful for decision-making
It does not account for variable costs
Which of the following is an example of a fixed cost?
Direct materials
Direct labor
Depreciation expense
Shipping cost
A company’s cost function is given as y=20,000+60xy = 20,000 + 60xy=20,000+60x. What does the 20,000 represent?
Variable cost per unit
Fixed cost
Total cost
Cost per unit
If a company has a cost function y=100+5x, what is the total cost when producing 10 units?
$100
$150
$500
$50
What happens to the fixed cost per unit when production increases?
It increases
It decreases
It remains constant
It fluctuates randomly
A company’s total cost is $200,000 at 3,000 units and $180,000 at 3,000 units. Using the High-Low method, what is the variable cost per unit?
$40
$50
$60
$70
Which of the following is an example of a semi-variable (mixed) cost?
Rent
Salaries
Telephone charges
Direct materials
Which of the following best describes step costs?
Costs that remain constant over a certain range but increase at specific thresholds
Costs that change proportionally with production
Costs that remain fixed regardless of output
Costs that always vary
If total cost is $150 and production is 10 units, what is the average cost per unit?
$5
$10
$15
$20
What is the purpose of the scatter graph method in cost analysis?
To determine the break-even point
To estimate the cost function visually
To calculate the contribution margin
To allocate costs to different departments
A company has fixed costs of $50,000 and variable costs of $8 per unit. What is the total cost if 5,000 units are produced?
$50,000
$70,000
$90,000
$100,000
If the cost function is given as y=30,000+25xy = 30,000 + 25xy=30,000+25x, what is the total cost when producing 2,000 units?
$30,000
$50,000
$80,000
$100,000
A company uses the High-Low method. The highest activity level is 8,000 units with a total cost of $250,000, and the lowest activity level is 4,000 units with a total cost of $170,000. What is the variable cost per unit?
$15
$20
$25
$30
A company’s cost function is y=15,000+10xy = 15,000 + 10xy=15,000+10x. What is the fixed cost?
$10 per unit
$15,000 (Correct Answer)
$25,000
Cannot be determined
The total cost of production for 1,500 units is 120,000.Thevariablecostperunitis 50. What is the total fixed cost?
$25,000
$45,000
$50,000
$60,000
A company has total fixed costs of 40,000andavariablecostof 5 per unit. If 2,000 units are produced, what is the cost per unit?
$10
$20
$25
$25 (Correct Answer)
If a company incurs total costs of $90,000 for producing 6,000 units and the variable cost per unit is $8, what is the fixed cost?
$30,000
$42,000
$48,000
$50,000
A step cost increases from 10,000to 15,000 when production moves from 3,000 to 4,000 units. What is the additional cost per unit in this step?
$1
$5 (Correct Answer)
If a company uses the High-Low method and the cost function is estimated as y=12,000+8x, what is the total cost when 500 units are produced?
$4,000
$8,000
$16,000
$16,000
A company’s cost function is y=100,000+50xy = 100,000 + 50xy=100,000+50x. If the company produces 2,500 units, what is the total cost per unit?
$50
$70
$90
$100
Which method is used to estimate costs by analyzing the highest and lowest activity levels?
Scatter graph method
Regression analysis
High-Low method
Step cost method
