Which of the Following Is True of a Company That

question 375

Multiple Choice

Which of the following is true of a company that uses absorption costing?

• A) Net operating income fluctuates directly with changes in sales volume.
• B) Fixed production and fixed selling costs are considered to be product costs.
• C) Unit product costs can change as a result of changes in the number of units manufactured.
• D) Variable selling expenses are included in product costs.

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Definitions:

Direct Labor

Workers or employees that are directly involved in the production of goods or services.

Factory Overhead

Costs incurred during the manufacturing process that are not directly tied to the product, including utilities, depreciation of equipment, and salaries of maintenance staff.

Equivalent Units

A calculation used in cost accounting to express the amount of work done on partially finished goods in terms of fully completed units.

First-In, First-Out

An inventory valuation method that assumes goods are sold in the order they are acquired, with the cost of the oldest products being used to calculate cost of goods sold first.