Variable-Costing Income Statement Preparation Quiz

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17 Questions

What is the total unit product cost per T-shirt for Happy Yarn Inc.?


What is the net operating income for Happy Yarn Inc. using the variable costing method?


In a variable costing income statement, what is included in the cost of goods sold?

Only variable manufacturing costs

What impact does an increase in production volume have on fixed costs in a variable costing income statement?

Fixed costs remain the same

Which costing method would show a higher net income when production exceeds sales?

Absorption costing

Which method, between variable costing and absorption costing, focuses on how changes in production volume affect net operating income?

Variable costing

In a firm using variable costing, how do profits behave with sales fluctuations?

Profits fluctuate with sales

In a variable costing income statement, how are fixed manufacturing costs treated?

Treated as period costs

When production levels surpass normal capacity in a direct costing system, what is the inventory value comparison between companies?

Company Y reports a higher inventory value than Company Z

How do unit product costs change in variable costing with varying production quantities?

Unit product costs remain constant

What happens to fixed costs per unit when the activity level increases within the relevant range?

An increase in fixed cost per unit

In an income statement using the direct costing method, where are fixed selling and administrative expenses typically included?

Be used in the computation of operating income but not in the computation of the contribution margin

What are unabsorbed fixed overhead costs in an absorption costing system?

Fixed manufacturing costs not allocated to units produced

When comparing variable costing and absorption costing, under what condition will both methods show the same net operating income?

Ending inventories

What is a key difference between absorption costing and variable costing related to profits and sales fluctuations?

Profits may decrease with increased sales even if there is no change in selling prices and costs

How does variable costing net income compare to absorption costing net income when production is lower than sales?

Variable costing net income is lower than absorption costing net income

What characterizes variable costing with respect to the treatment of fixed selling and administrative expenses?

Fixed expenses are included in computing operating income but not in contribution margin

Test your understanding of preparing a variable-costing income statement using the provided data on sales, costs, and expenses. Practice calculating the gross margin, operating income, and other key financial figures based on the given information.

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