Question

22) The cost of goods sold is a variable cost for merchandise company, but contains a mixture of variable and fixed production costs for manufacturers. True or False

23) Internal auditors conduct the independent audit function of the company and issue financial statements on the company's behalf. True or false

24) If inventory has not increased or decreased, but has stayed the same, operating income will be the same under variable costing and absorption costing. True or False

Answer 1

22) True.

The cost of goods sold for a merchandiser is the purchase cost of the merchandise which is a variable cost while the cost of goods sold for a manufacturer also includes the cost of manufacturing overheads which may be both variable and fixed. Hence, the statement is true.

23) False

Internal auditors are concerned with issues pertaining to the organizations business practices, risks, and internal controls however they do not issue financial statements on behalf of the company. Hence, the statement is false.

24) False

The difference between the variable costing operating income and the absorption costing income statement is due to the fixed manufacturing overheads which are treated as period costs and expensed under variable costing while the same are deferred in ending inventory under absorption costing. Thus, the difference in the operating incomes between the two is on account of the difference between number of units produced and sold. Whenever, the production is more or lesser than the sales volume, there will be a difference between the two operating incomes even if there is no change in the inventory. Hence, the statement is false.