Which of the following statements is true of absorption and variable costing met

Question

Which of the following statements is true of absorption and variable costing methods?

Select one:

A. Absorption costing considers fixed manufacturing overhead to be period costs.

B. Both costing methods consider fixed manufacturing overhead to be product costs.

C. Both costing methods consider selling and administrative costs to be period costs.

D. Variable costing considers variable selling and administrative costs to be product costs.

Both job order costing and process costing track the product costs of direct materials, direct labor, and manufacturing overhead through three inventory accounts on the balance sheet.

Select one:

True

False

There is no need for managers to have employees participate in developing the budget because the budget is a management tool.

Select one:

True

False

The manager of a revenue center is responsible for generating profits.

Select one:

True

False

Return on investment measures the profitability of an investment center but not the efficiency in using its assets.

Select one:

True

False

The discounted cash flow methods of evaluating capital investments are superior because they consider both the time value of money and the profitability of the investment.

Select one:

True

False

Explanation / Answer

In absoption costing, any manufacturing cost irrespective of fixed or variable is consdered as product costs where as in variable costing, only variable costs including non-manufacturing costs are considered as product costs.

According to above explanation, option d is correct one.

2.

Manufacturing companies track the costs of inventory in three ways. They are raw materials, work in process and finished goods. Both job order costing and process costing are used in manufacturing companies. Hence, given statement is true.

3.

Budget is prepared for achieving goals of companies by giving guidelines or directions to employess. Even management has superior power over budget prepartions, employees participation is also needed for having great impact and moving in effective way. Hence, given statement is false.

4.

In revenue center, manager tries to control the costs regarding marketing and sales in order to maximise the profits. Hence, given statement is true.

5.

Return on investment is the permformance measurement which is helpful to compare the efficiency of different investments, not for evaluate the efficiency of assets. Hence, given statement is true.

6.

To evaluate the capital investments, disocunted cash flow methods are considered as they consider both time value of money and the profitability investment. Therefore, given statement is true.

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