ACC 604 Homework Chapter 5 (National University)

ACC 604 Homework Chapter 5
(National University)
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Chapter Five
1. What is the basic difference between absorption costing and variable costing?
2. Are selling and administrative expenses treated as product costs or as period costs under variable
costing?
3. Explain how fixed manufacturing overhead costs are shifted from one period to another under
absorption costing.
4. What are the arguments in favor of treating fixed manufacturing overhead costs as product costs?
5. What are the arguments in favor of treating fixed manufacturing overhead costs as period costs?
6. If the units produced and unit sales are equal, which method would you expect to show the higher
net operating income, variable costing or absorption costing? Why?
7. If the units produced exceed unit sales, which method would you expect to show the higher net
operating income, variable costing or absorption costing? Why?
8. If fixed manufacturing overhead costs are released from inventory under absorption costing, what
does this tell you about the level of production in relation to the level of sales?
9. Under absorption costing, how is it possible to increase net operating income without increasing
sales?
10. How does Lean Production reduce or eliminate the difference in reported net operating income
between absorption and variable costing?
11. What is a segment of an organization? Give several examples of segments.
12. What costs are assigned to a segment under the contribution approach?
13. Distinguish between a traceable cost and a common cost. Give several examples of each.
14. Explain how the segment margin differs from the contribution margin.
15. Why aren’t common costs allocated to segments under the contribution approach?
16. How is it possible for a cost that is traceable to a segment to become a common cost if the segment
is divided into further segments?