Question

5.) How does absorption-cost valuation of inventory differ from variable-cost valuation of inventory?

a. Absorption cost valuation of inventory includes fixed manufacturing overhead.

b. Absorption cost valuation of inventory is always less than variable cost valuation of inventory

c. Absorption cost valuation of inventory includes variable selling costs.

d. Absorption cost valuation of inventory includes fixed selling costs.

6.) One advantage of absorption costing is?

a. Companies can avoid using estimates in product costing.

b. Companies always report higher net operating income.

c. Companies report all of the costs of getting inventory ready for sale to customers in a single place on the income statement.

d. Companies can readily use the absorption costing information in cost-volume-profit analysis.

7.)

Smith LLC is an oilfield service company that measures its output by the number of wells serviced. The company has provided the following fixed and variable cost estimates used for budgeting purposes.

	Fixed Element per Month	Variable Element per Well Serviced	Variable Element Per Number of Servicing Days
Revenue		$1,000	$140
Employee salaries and wages	$56,400	$900
Servicing materials		$200	$20
Other expenses	$15,400		$800

When the company prepared its planning budget at the beginning of December, it assumed that 34 wells would have been serviced over 25 days. However 32 wells were actually serviced during the period over 30 days. The actual "other expenses" were $37,400. What is the spending variance?

a. $4000 U

b. $4000 F

c. $2000 F

d. $2000 U

Answer 1

5.)	Absorption-cost valuation of inventory differ from variable-cost valuation of inventory because under Absorption cost valuation of inventory includes fixed manufacturing overhead where variable consting treats fixed manufacturing overhead as Period costs.
	Correct answer is option a .
6.)	One advantage of absorption costing is Companies always report higher net operating income because under Absorption cost valuation of inventory includes fixed manufacturing overhead where variable consting treats fixed manufacturing overhead as Period costs.
	Correct answer is option b .

7.)	Flexible Budget	39,400	=15400+(800*30)
	Less: Actual other expense	37,400
	Spending Variance	$ 2,000	Favorable
	Correct answer is option C .