QUESTIONS 7-1 7-2 7-3 7-4 7-5 What is the difference between absorption costing and variable costing? Are selling and administrative expenses treated as product costs or as period costs under variable costing? Explain how fixed manufacturing overhead costs are shifted from one period to another under absorption costing What are the arguments in favor of treating tixed manufacturing overhead costs as product costs? What are the arguments in favor of treating fixed manufacturing overhead costs as period costs? In the units produced equals the units sold, which method would you expect to show the higher net operating income, variable costing or absorption costing? Why? If the units produced exceed the units sold, which method would you expect to show the higher net operating income, variable costing or absorption costing? Why? If fixed manufacturing overhead costs are released from inventory under absorption costing, what does this tell you about the level of production in relation to the level of unit sales? Under absorption costing, how is it possible to increase net operating income without increasing sales? How does Lean Production reduce or eliminate the difference in reported net operating income between absorption and variable costing? 7-7 7-8 7-9 7-10