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Variable Costing:
The variable costing is a method used to allocate the fixed manufacturing overhead by a company. It allocates these overheads to the period of production and not to the inventory left unsold or ending inventory.
Absorption Costing:
The absorption costing is a method used to allocate the fixed manufacturing overhead by a company. It allocates these overheads based on the inventory produced and inventory sold. It is based on the approach that the unsold inventory also consist some fixed manufacturing overhead incurred during a period.
To identify: The false statement about performance measurement by variable costing and absorption costing.
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Chapter 9 Solutions
Horngren's Cost Accounting, Student Value Edition Plus MyLab Accounting with Pearson eText - Access Card Package (16th Edition)
- Which statement is correct? A. Activity-based cost systems are less costly than traditional cost systems. B. Activity-based cost systems are easier to implement than traditional cost systems. C. Activity-based cost systems are more accurate than traditional cost systems. D. Activity-based cost systems provide the same data as traditional cost systems.arrow_forwardWhich of the following is not a potential advantage of variable costing relative to absorption costing? Net income calculated under variable costing is not closely tied to changes in sales levels. Net income calculated under variable costing is unaffected by changes in production levels. It is easier to understand the impact of fixed and variable costs on the computation of net income when variable costing is used. The use of variable costing is consistent with cost-volume-profit analysisarrow_forwardWhen absorption costing is used a. management may be tempted to overproduce in a given period in order to decrease net income. b. for external reporting, variable costing can still be used for internal reporting purposes. c. it facilitates cost-volume-profit analysis. d. and production exceeds sales, absorption costing reports a lower net income than variable costing.arrow_forward
- 1. Explain why the variances used to reconcile profit in a standard costing system are different from those used in a standard absorption costing system. 2. Explain the arguments for the use of traditional absorption costing rather than marginal costing for profit reporting and inventory valuation.arrow_forwardTRUE OR FALSE Performance evaluation based on income could be best achieved by using variable costing method in costing the products rather than absorption costing method.arrow_forwardWrong allocation of common costs lead to A. Inaccurate estimation of cost of products or services B. Under utilization of capacity C. Lower profit margin D. All of the above are correctarrow_forward
- Which of the following statement is correct? A In a variable costing income statement, sales revenue is typically higher than in absorption costing income statement. B When production is not equal to sales, income under absorption costing differs from income under variable costing due to the difference in treatment ( product cost and period cost) of the fixed overhead cost under the two costing methods. C In variable costing system, fixed overhead cost is included as part of the cost of inventory. D In an absorption costing system, fixed overhead cost is treated as a period cost.arrow_forwardWhat is the basic difference between variable costing and absorption costing?a. Variable costing always produces less taxable income that absorption costing.b. Variable costing recognizes fixed costs as a period cost and absorption costingrecognizes fixed costs as a product cost.c. Variable costing cannot use standards, whereas standards may be used with absorptioncosting.d. Variable costing may be used only in situations where production is essentiallyhomogenous, but absorption costing may be used under any manufacturing condition.arrow_forwardWhich of the following statements regarding absorption and variable costing is correct? A Absorption costing results in higher income when inventory increases. B Variable manufacturing costs are lower under absorption costing. C Overhead costs are treated in the same manner under both variable and absorption costing methods. D Profits are always the same under two costing methods.arrow_forward
- Which of the following statements is false ? a. Volume-based costing has typically resulted in undercost for high-volume products and overcost for low-volume products . b. All the statements are false . c . Activity-based costs per unit are always greater than volumebased costs per unit. d. Activity-based costing typically provides less information about product costs while requiring more recordkeeping. e. Different cost allocation methods are constructed so that they typically result in the same or similar estimates of how much it costs to make a product.arrow_forwardWhich of the following is not a true statement about variable costs? a. Total cost is known to change in proportion to any changes in related level of volume or activity. O b. When considering total cost behaviour, focus on fixed and variable costs. O c. A total cost that can change in proportion to changes in the number of products produced. O d. Total cost never changes in proportion to any changes in related levels of volume or activity. O e. An important cost to identify so managers can make important management decisions.arrow_forwardWhen standard costs are used in applying the cost-plus approach to product pricing, the standards should be based upon normal levels of performance. True Falsearrow_forward
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