14.1 Explain the similarities and differences among absorption, variable, and throughput costing.
14.2 Explain how variable costing income statements can be reconciled to absorption costing income statements.
14.3 Explain why no volume variance occurs when variable costing is used.
14.4 The volume of production in a period has an effect on income calculated using absorption costing but has no effect on
income calculated using variable costing. Explain.
14.5 The basic issue in variable and absorption costing could be said to be one of timing rather than amount. Explain.
14.6 What is the difference between a cost that is variable and variable costing?
determine the fixed overhead allocation rate?
14.8 If inventory physically increases during the period, income under absorption costing will be higher than income using
variable costing. Explain.
14.9 Why do U.S. GAAP and IFRS require absorption costing?
14.10 A firm uses variable costing for internal reports and updates these reports daily. It must convert the variable costing
results to absorption costing results for external reports. How can this conversion be accomplished?
14.11 How are joint costs allocated under variable costing? (Hint: This question assumes knowledge of Chapter 9.)
14.12 Explain how managers could use inventory levels to manage earnings under the absorption costing method.
14.13 What overhead allocation denominator level is required by the IRS? Why?
14.14 What are the differences between theoretical, practical, normal, and budgeted capacities?
14.15 How are volume variances recorded in financial statements?
EXERCISES
14.16
Q1, Q2
Absorption and variable income Famous Desk Company manufactures desks for office use. The
variable cost of 100 units in beginning inventory is $80 each. The absorption cost is $146.67 each.
Assume the LIFO cost flow assumption. Following is information about this period’s production.
Selling price $300 per desk
Variable production cost $80 per desk
Fixed production costs $10,000 per month
