In Income Statements Prepared Under Absorption Costing and Variable Costing

question 12

Multiple Choice

In income statements prepared under absorption costing and variable costing, where would you find the terms contribution margin and gross profit?

• A)The difference is expensed as a period cost the way variable costing immediately expenses fixed overhead as a period cost.
• B)The difference is over or under-applied overhead that if immaterial, will be closed out to cost of goods sold at year end.
• C)The difference will be held in inventory and taken to cost of goods sold when the units are sold next year.
• D)There is no difference.

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Definitions:

Supply Determined

A scenario where the quantity of goods available in the market is primarily dictated by the supply side, rather than consumer demand.

Spruce Goose

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Fixed in Supply

Pertains to goods or resources that have a limited or unchangeable quantity available, regardless of demand.

High-Speed Rail

A type of rail transport that operates significantly faster than traditional rail traffic, using specialized rolling stock and dedicated tracks.