Question

Which of the following is true about absorption costing?

a.

No fixed factory overhead is charged to production

b.

It is also known as direct costing

c.

The term used to designate the difference between sales and cost of goods sold is the "manufacturing margin."

D. Overapplied factory overhead is reflected in the income statement as a reduction cost of goods sold.

Which of the following would cause the break-even point to change?

	a.	Sales volume increased.
	b.	Fixed costs increased due to addition to physical plant.
	c.	Total variable costs increased as a function of higher production.
	d.	Total production decreased.

Answer 1

Answer 1 -

Correct statetment - fixed factory overhead is charged to production.

Correct statetment - Variable costing is known as direct costing.

Correct statetment - The term used to designate the difference between sales and cost of goods sold is the "gross profit".

Option D is the required answer as  Overapplied factory overhead occurs only in absorption costing and is reflected in the income statement as a reduction cost of goods sold.

Answer 2 -

break-even point = Fixed costs / Contribution margin per unit

Option B is the required answer as Fixed costs are changing.

Rest changes will not affect Contribution margin per unit.