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 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?

8. Under absorption costing, how is it possible to increase net operating income without increasing sales?