17 Questions
What is the total unit product cost per T-shirt for Happy Yarn Inc.?
P$4.50
What is the net operating income for Happy Yarn Inc. using the variable costing method?
P$4,000
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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