Answer the following statements true (T) or false (F)
1. Variable costing treats fixed overhead cost as a period cost.
2. The biggest problems with producing too much are lost sales and customer dissatisfaction.
3. Many companies link manager bonuses to income computed under absorption costing because this is how income is reported to shareholders.
4. Under absorption costing, a company had the following unit costs when 10,000 units were produced:
The total product cost per unit under absorption costing if 25,000 units had been produced would be $11.
5. Assume a company had the following production costs:
Under absorption costing, the total product cost per unit when 4,000 units are produced would be $22.50.
1. TRUE
2. FALSE
3. TRUE
4. TRUE
Explanation: $2 DL + $3 DM + $4 VOH + ($50,000/25,000) FOH = $11
5. FALSE
Explanation: $2 + $3 + $4 + ($50,000/4,000) = $21.50 per unit
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Indicate whether the statement is true or false.
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