Question

ALL TRUE OR FALSE QUESTIONS:

A) Differences between the static planning budget and the flexible budget show what should have happened because the actual level of activity differed from what had been planned.

B) Fixed costs should not be included in a flexible budget because they do not change when the level of activity changes.

C) An activity variance is the difference between an actual revenue or cost and the revenue or cost in the flexible budget that is adjusted for the actual level of activity of the period.

D) Actual costs are determined by plugging the actual level of activity for the period into the cost formulas used in flexible budgets.

E) The variable costs of a product are relevant in a decision concerning whether to eliminate the product.

F) A vertically integrated company is less dependent on its suppliers than a company that is not vertically integrated.

G) Under variable costing, only variable production costs are treated as product costs.

H) Net operating income computed using absorption costing will always be less than net operating income computed using variable costing.

I) Indirect costs, such as manufacturing overhead, are variable costs.

J) In a traditional format income statement, the gross margin is sales minus cost of goods sold.

K) Product costs are also known as inventoriable costs.

L) Cost behavior is considered curvilinear whenever a straight line is a reasonable approximation for the relation between cost and activity.

M) Most companies use the contribution approach in preparing financial statements for external reporting purposes.

N) A fixed cost fluctuates in total as activity changes but remains constant on a per unit basis over the relevant range.

0) Conversion cost is the same thing as manufacturing overhead.

Answer 1

A)	Differences between the static planning budget and the flexible budget show what should have happened because the actual level of activity differed from what had been planned.	TRUE
B)	Fixed costs should not be included in a flexible budget because they do not change when the level of activity changes.	FALSE
C)	An activity variance is the difference between an actual revenue or cost and the revenue or cost in the flexible budget that is adjusted for the actual level of activity of the period.	FALSE
D)	Actual costs are determined by plugging the actual level of activity for the period into the cost formulas used in flexible budgets.	FALSE
E)	The variable costs of a product are relevant in a decision concerning whether to eliminate the product.	TRUE
F)	A vertically integrated company is less dependent on its suppliers than a company that is not vertically integrated.	TRUE
G)	Under variable costing, only variable production costs are treated as product costs.	TRUE
H)	Net operating income computed using absorption costing will always be less than net operating income computed using variable costing.	FALSE
I)	Indirect costs, such as manufacturing overhead, are variable costs.	FALSE
J)	In a traditional format income statement, the gross margin is sales minus cost of goods sold.	TRUE
K)	Product costs are also known as inventoriable costs.	TRUE
L)	Cost behavior is considered curvilinear whenever a straight line is a reasonable approximation for the relation between cost and activity.	FALSE
M)	Most companies use the contribution approach in preparing financial statements for external reporting purposes.	FALSE
N)	A fixed cost fluctuates in total as activity changes but remains constant on a per unit basis over the relevant range.	FALSE
O)	Conversion cost is the same thing as manufacturing overhead.	FALSE