QUESTION 5 25 points Save Answer Choose \"TRUE\" or \"FALSE\" as applicable for

Question

QUESTION 5 25 points Save Answer Choose "TRUE" or "FALSE" as applicable for each of the following items as they pertain to variable costing. The cost per inventory unit is NOT affected by changes A. True in production volume. B. False Variable general and administrative costs are NOT assigned to inventory units. When inventory units produced exceed units sold, variable costing will generate a higher profit than absorption costing All manufacturing costs flow through work in process finished goods and cost of goods sold C The cost per inventory unit will decrease as production volume increases.

Explanation / Answer

The Cost per inventory unit is not affected by changes in production volume. – False. The Cost per inventory units will decrease if the production volume increases and the Cost per inventory units will increase if the production volume decreases. So, Changes in production volume affects the cost per inventory unit. Variable general and administrative costs are not assigned to inventory units – True. The manufacturing costs are usually made up of direct materials, variable manufacturing overhead, and direct labor.   The product costs (or cost of goods sold) would include direct materials, direct labor and overhead. The period costs would include selling, general and administrative costs. So, the general and administrative costs are not assigned to inventory units. When inventory units produced exceed units sold, variable costing will generate a higher profit than absorption costing – True. The amount by which the operating income reported under absorption costing exceeds the operating income reported under variable costing is given by the following formula. Fixed Factory Overhead Per Unit x Unsold Units. All manufacturing costs flow through work in process, finished goods and cost of goods sold – True. The flow of manufacturing costs (direct materials, direct labor, and manufacturing overhead) from when incurred through the direct materials inventory, work-in-process inventory, and finished goods inventory accounts to the cost of goods sold account. The cost per inventory unit will decrease as production volume increases. – True. The cost per inventory unit will decrease as the production volume goes up which means the volume of estimated production is higher than expected, it produces more units. The more the units the less the cost per inventory unit.

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