1. Net operating income is affected by changes in production under both variable costing and absorption costing.
True
False

2. Variable selling and administrative expenses are part of product costs under the variable costing approach.
True
False

3. Under the absorption costing method, a company can increase profits by increasing production rather than by increasing sales.
True
False

4. Which of the following costs at a sofa manufacturing company would be treated as a period cost under the variable costing method?
(A) the cost of glue used to assemble the wood frame of each sofa produced
(B) Depreciation on sales vehicles
(C) The salary of a factory manager
(D) Both B and C above

5. What is the cause of the difference between absorption costing net operating income and variable costing net operating income?
A. Absorption costing deducts all manufacturing costs from net operating income; variable costing deducts only prime costs.
B. Absorption costing allocates fixed manufacturing costs between cost of goods sold and inventories; variable costing considers all fixed manufacturing costs to be period costs.
C. Absorption costing includes variable manufacturing costs in product costs; variable costing considers variable manufacturing costs to be period costs.
D. Absorption costing includes fixed administrative costs in product costs; variable costing considers fixed administrative costs to be period costs.

6. A cost that would be included in product costs under both absorption costing and variable costing would be:
A. supervisory salaries.
B. equipment depreciation.
C. variable manufacturing costs.
D. variable selling expenses.

7. Which of the following costs at a manufacturing company would be treated as a product cost under the absorption costing method?
A. Sales commissions
B. Fire insurance cost on factory building
C. Advertising costs
D. All of the above

8. Weber Company computes net operating income under both the absorption costing approach and the variable costing approach. For a given year the absorption costing net operating income was greater than the variable costing net operating income. This fact suggests that:
A. variable manufacturing costs were less than fixed manufacturing costs.
B. more units were produced during the year than were sold.
C. more units were sold during the year than were produced.
D. common costs were greater than variable costs for the year.

9. If a company switches from a traditional costing system to an activity-based costing system in which some activities are batch-level and product-level, costs ordinarily shift from high-volume to low-volume products.
True
False

10. Arranging for a shipment of a number of different products to a customer is an example of an activity at which of the following levels?
A. Unit-level activity.
B. Batch-level activity.
C. Customer-level activity.
D. Organization-sustaining activity.

11. Rank the following methods of assigning overhead costs from least accurate to most accurate.
A. departmental rates, plantwide rate, activity-based costing
B. plantwide rate, departmental rates, activity-based costing
C. plantwide rate, activity-based costing, departmental rates
D. activity-based costing, departmental rates, plantwide rate
E. activity-based costing, plantwide rate, departmental rates

12. Overhead allocation based solely on a measure of volume such as direct labor-hours:
A. is a key aspect of the activity-based costing model.
B. will systematically overcost high-volume products and undercost low-volume products.
C. will systematically overcost low-volume products and undercost high-volume products.
D. must be used for external financial reporting.

13. Testing a prototype of a new product is an example of a(n):
A. Unit-level activity.
B. Batch-level activity.
C. Product-level activity.
D. Organization-sustaining activity.

14. Worker recreational facilities is an example of a cost that would ordinarily be considered to be:
A. Unit-level.
B. Batch-level.
C. Product-level.
D. Organization-sustaining.