QUESTION 2 Choose the item that is FALSE regarding VARIABLE costing D. Variable
ID: 2534650 • Letter: Q
Question
QUESTION 2 Choose the item that is FALSE regarding VARIABLE costing D. Variable .When units The cost per unit is NOT affected by changes in production volume VARIABLE MANUFACTURING costs flow through work in process, finished goods and cost of goods sold .When units produced sold exceed units produced variable costing will generate a higher profit than absorption costing EQUAL units sold variable costing will generate a higher profit than absorption costing selling general and administrative costs are NOT assigned to inventory unitsExplanation / Answer
The answer is A it’s false statement when units produced is equal to units sold the profit in both the method ie absorption and variable will be same and not higher in variable costing method .
In variable costing method the FIXED MANUFACTURING EXPENSES ARE charged in the period in which they occur. & In ABSORPTION COSTING this costs are push forward to the next period when products are sold.
So in option A cost of goods sold will be same and thus the profits will also be equal.
Option B correct: The cost per unit is not affected in variable costing because Variable costing is a costing method that includes only variable manufacturing costs—direct materials, direct labor, and variable manufacturing overhead—in unit product costs.
Option c : correct:- As we write in above para that variable cost is considered in this method.
Option D : Correct: Variable selling and general expenses are assigned to sold units and not to ending inventory in variable costing
Option E: Correct:- If the units sold exceed unit produced, the profits will be higher in variable costing. Because in Variable costing total cost will be the cost of that period ‘s production volume (variable and fixed) and will not include any cost of units sold exceed of produced units and in absorption costing the total cost will be period ‘s production cost as units are sold in that period and also the brought forwarded manufacturing cost of excess units.
so the cost will be higher in absorption costing and lesser in variable costing it results in higher profit in variable costing.