Question

Indicate whether each of the following statements is true or false.

1. The sole reason that an overhead volume variance exists in full absorption costing is because fixed overhead costs are being absorbed.

2. Variable costing provides more useful information for make-or-buy decisions than does full-absorption costing.

3. Overhead volume variances occur frequently in manufacturing environments but seldom in service environments, where full-absorption costing is used.

4. The contribution margin is defined as the difference between revenue and variable manufacturing costs.

5. An argument against the use of variable costing is that it does not comply with generally accepted accounting methods.

6. When manufactured inventory grows during an accounting period, full-absorption costing reports slightly lower earnings than does variable costing.

7. Product standard cost data are often utilized by managers and analysts in departments other than the accounting department.

8. Standard cost accounting systems are expensive to operate.

9. Wage rate variance information is less useful to a production manager than labor efficiency variance information.

10. When standard costs are set tight and inventories are growing, a standard cost accounting system tends to report lower operating profits than does an actual cost accounting system.

11. A company could have a zero balance for total material variance for an accounting period while at the same time report credit variances for both the Material Price and Material Usage Variances accounts.

12. Material price variance information is more useful to the purchasing department than is material usage variance data.

Answer 1

The sole reason that an overhead volume variance exists in full absorption costing is because fixed overhead costs are being absorbed.

Answer : True.

Because overhead volume variance arises due to difference in production units. In absorption costing the fixed manufacturing overhead is considered as product cost, so it is absorbed by the number of units produced. But in variable costing it is taken as period cost. So in variable costing there is no point of volume variance, because irrespective of number of units produced it is taken as period cost. In absorption costing if the units produced varies from budgeted units volume variance arises. So sole reason for volume variance in absorption costing is fixed overhead is absorbed by the units produced.