Question

1. Assuming that direct labor is a variable cost, product costs under variable costing include only:

Select one:

a. direct materials, direct labor, variable manufacturing overhead, and variable selling and administrative expenses.

b. direct materials and direct labor.

3.

Which of the following statements is true?

I. Expenses are not usually separated into variable and fixed elements in externally reported income statements.

II.   Even if there is no change in units sold, selling price, or cost structure, a company can increase its absorption costing net operating income from one year to the next just by producing more units.

III. When finished goods inventory decreases during a period, a manufacturing company's absorption costing net operating income for that period will usually be greater than its variable costing net operating income.

Select one:

a. I only

b. II only

c. Both I and II

d. III only

2. Corcetti Company manufactures and sells prewashed denim jeans. Large rolls of denim cloth are purchased and are first washed in a giant washing machine. After the cloth is dried, it is cut up into jean pattern shapes and then sewn together. The completed jeans are sold to various retail chains.

Which of the following terms could be used to correctly describe the cost of the soap used to wash the denim cloth?

Direct Cost Product Cost

(A) Yes Yes

(B) Yes No

(C) No Yes

(D) No   No

Select one:

a. Choice A

b. Choice C

c. Choice B

d. Choice D

c. direct material, variable manufacturing overhead, and variable selling and administrative expenses.

d. direct materials, direct labor, and variable manufacturing overhead.

Answer 1