Managerial Accounting Quiz on Chapter 2 Absorption Costing vs Variable Costing

PRACTICE QUIZ

1. MAS
QUIZ ON CHAPTER 2
ABSORPTION COSTING VS
VARIABLE COSTING

2. 1. What is the primary difference between absorption
costing and variable costing?
A) Treatment of fixed manufacturing overhead
B) Allocation of variable selling expenses
C) Calculation of contribution margin
D) Allocation of direct materials costs

3. 2. Under absorption costing, fixed manufacturing
overhead is:
A) Expensed in the period incurred
B) Allocated to each unit produced
C) Not included in product cost
D) Added to selling expenses

4. 3. Which costing method generally leads to higher
reported profits when production exceeds sales?
A) Variable costing
B) Direct costing
C) Absorption costing
D) Throughput costing

5. 4. In variable costing, fixed manufacturing overhead is
treated as:
A) A product cost
B) A period expense
C) An inventory cost
D) A variable expense

6. 5. Which of the following is included in product costs
under absorption costing but not under variable
costing?
A) Direct materials
B) Direct labor
C) Variable manufacturing overhead
D) Fixed manufacturing overhead

7. 6. Under which costing method will profits change
solely based on sales volume?
A) Absorption costing
B) Variable costing
C) Activity-based costing
D) Job order costing

8. 7. Which of the following is true under absorption
costing when production exceeds sales?
A) Some fixed manufacturing overhead is deferred in
inventory
B) Fixed manufacturing overhead is fully expensed
C) Gross margin equals contribution margin
D) Operating income is lower compared to variable
costing

9. 8. Which method aligns better with external financial
reporting standards (GAAP)?
A) Variable costing
B) Absorption costing
C) Throughput costing
D) Direct costing

10. 9. What is one key disadvantage of absorption costing?
A) It leads to lower net income when production is low
B) It encourages overproduction to absorb fixed costs
C) It does not separate variable and fixed costs
D) It understates inventory values

11. 10. In variable costing, what is the contribution
margin?
A) Sales minus fixed expenses
B) Sales minus cost of goods sold
C) Sales minus all variable costs
D) Sales minus fixed and variable expenses

12. ANSWER KEY
1. A. 6. B.
2. B. 7. A.
3. C. 8. B.
4. B. 9. B.
5. D. 10. C.