1. The Southern Corporation manufactures a single product and has the following cost structure:
Variable costs per unit: $ 38
Production
Selling and administrative $ 14
Fixed costs per year:
Production $ 140,000
Selling and administrative $ 84,000
Last year, 7,000 units were produced and 6,800 units were sold. There was no beginning inventory.
The carrying value on the balance sheet of the ending inventory of finished goods under variable costing would be:
a. $6,800 greater than under absorption costing.
b. $6,800 less than under absorption costing.
c. $4,000 less than under absorption costing.
d. the same as absorption costing.
2. Which of the following is true of a company that uses absorption costing?
Unit product costs can change as a result of changes in the number of units manufactured.
Fixed production and fixed selling costs are considered to be product costs.
Variable selling expenses are included in product costs.
Net operating income fluctuates directly with changes in sales volume.