4. Cost and Management Accounting

Absorption Costing — Quiz

Test your understanding of absorption costing with 5 practice questions.

Practice Questions

Question 1

A company manufactures a single product. Budgeted fixed production overheads for the year are $$ \$180,000 $ and budgeted production is $ 45,000 $$ units. What is the fixed production overhead absorption rate per unit?

Question 2

Under absorption costing, if a company's production volume is consistently higher than its sales volume over several periods, what is the cumulative effect on reported profit compared to marginal costing?

Question 3

A company has the following costs per unit: Direct materials $$ \$20 $, Direct labor $ \$15 $, Variable manufacturing overhead $ \$10 $. Total fixed manufacturing overheads are $ \$250,000 $ for a production of $ 50,000 $$ units. What is the total product cost per unit under absorption costing?

Question 4

Which of the following is a significant challenge when applying absorption costing in a multi-product environment with diverse production processes?

Question 5

A company uses absorption costing. In a period where opening inventory was $ 1,000 $ units and closing inventory was $ 1,500 $ units, how would the fixed manufacturing overheads treated in the income statement compare to a period where opening and closing inventories were equal?