COST ACCOUNTING
VARIABLE COSTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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the same as net income under absorption costing
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greater that net income under absorption costing method
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differing in as much as the difference between sales and production
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less than net income under the absorption costing method
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Detailed explanation-1: - Choice-letter “b” is the best answer because if production and sales are equal, the net income under the absorption costing and variable costing methods are also equal, under the assumption that the unit cost of production remains constant.
Detailed explanation-2: -7-6 If production and sales are equal, net operating income should be the same under absorption and variable costing. When production equals sales, inventories do not increase or decrease and therefore under absorption costing fixed manufacturing overhead cost cannot be deferred in inventory or released from inventory.
Detailed explanation-3: -To determine your net income, add up all your fixed production expenses. These include most of your overhead and other administrative expenses, such as salaries and rent. Then subtract this number from your contribution margin.
Detailed explanation-4: -Answer and Explanation: In variable costing, all the fixed costs are recorded as period costs and in absorption costing, fixed manufacturing costs are part of the manufacturing costs. If production is equal to sales units, the net income of the two methods are the same.
Detailed explanation-5: -Absorption costing entails allocating fixed overhead costs to all units produced for an accounting period. Variable costing includes all of the variable direct costs in COGS but excludes direct, fixed overhead costs.