Question

Under Absorption costing, the cost of goods sold includes:

a. Selling expenses

b. Administrative expenses

c. Variable and fixed manufacturing overhead

d. All of the above

Quality Motors manufactures sports cars and sells them to local dealerships. They use absorption costing. If Quality Motors want to defer the recognition of fixed costs as an expense, they can:

a. Produce more inventory than they sell in a period

b. Sell more inventory than they produce in a period

c. Sell as much as they produce in a period

d. None of the above

Quality Motors manufactures sports cars and sells them to local dealerships. They use absorption costing. Quality Motors has lower net income on their income statement this period compared to the previous period.

What could be a possible explanation for their lower net income?

a. Production exceeds sales

b. Sales equals production

c. Sales exceeds production

d. None of the above

Amos Rubber company manufactures tires. They reported the following information from their operations last period:

Cost of Direct Materials used in production:	$35,000
Cost of Direct Labor wages:	$40,000
Variable Manufacturing Overhead:	$30,000
Fixed Manufacturing Overhead:	$75,000
Total units produced and sold:	50,000

Under variable costing, what was the per-unit cost of the units produced?

a. $2.10

b. $3.60

c. $4.10

d. $4.20

Answer 1

1) c - variable and fixed manufacturing overhead

Since, selling and Administration cost are considered as period cost and are expensed in the period occurred. Those cost are not included in product cost.

2) d - none of the above

Fixed cost cannot be deferred, as it is a period cost it should be recognised during that period when it is accured.

3) a - production exceeds sales

If production exceeds sales than cost of production will be more and receipt from sales will be low this will lead to lower net income.

4) a- $ 2.1

Variable cost per unit= Total variable cost/ total number of units produced.

= (35000+40000+30000)/50000

= 2.1