Multiple choice:

a. Inventory under the variable costing method includes:

(1) Direct materials cost and direct labor cost, but not factory overhead cost.

(2) Direct materials cost, direct labor cost, and variable factory overhead cost.

(3) Prime cost but not conversion cost.

(4) Prime cost and total conversion cost.

b. Which of the following must be known about a production process in order to institute a variable costing system?

(1) The variable and fixed components of all costs related to production.

(2) The controllable and noncontrollable components of all costs related to production.

(3) Standard production rates and times for all elements of production.

(4) Contribution margin and break-even point for all goods in production.