COST ACCOUNTING
VARIABLE COSTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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In a variable costing income statement, sales revenue is typically higher than in absorption costing income statement.
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When production is not equal to sales, income under absorption costing differs from income under variable costing due to the difference in treatment ( product cost and period cost) of the fixed overhead cost under the two costing methods.
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In variable costing system, fixed overhead cost is included as part of the cost of inventory.
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In an absorption costing system, fixed overhead cost is treated as a period cost.
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Detailed explanation-1: -The correct statement about absorption and variable costing methods is option C. If the units produced are above the units sold, the company will have ending inventory units at the end. Note that ending inventory is a deduction from the cost of goods sold.
Detailed explanation-2: -The correct option is B. Variable manufacturing overhead is always considered a period cost, regardless of whether absorption or variable costing is used. Fixed manufacturing overhead is a period cost under absorption costing but not under variable costing.
Detailed explanation-3: -Absorption costing means that ending inventory on the balance sheet is higher, while expenses on the income statement are lower.
Detailed explanation-4: -Answer and Explanation: The amount of income under absorption costing will be less than the amount of income under variable costing when units manufactured b. Are less than units sold.
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.