Under absorption costing, fixed manufacturing overhead costs:

a) are released from inventory when sales exceeds production

b) are treated as variable costs

c) are deferred into inventory when sales exceeds production

d) are ignored

e) are always treated as period costs

Stark Industries believes their indirect materials costs are a variable cost, which change based on the number of units produced. Last month's performance report showed that the flexible budget had indirect materials cost totaling $8,500 for the month and that the associated activity variance was $500 F. If 10,000 units were originally expected to be produced last month, then the flexible budget cost formula for indirect materials per unit must be closest to:

a) 0.95

b) 0.80

c) 0.85

d) 1.18

e) 0.90

King Kong has launched a banana-flavored ice cream company. Their sales and production for the past four years is below:

	Y1	Y2	Y3	Y4
Production in units	5,000	6,000	5,000	5,000
Sales in units	4,000	5,000	5,000	7,000

Selling price per unit, variable cost per unit, and total fixed cost are the same each year. There were no beginning inventories in Year 1. Which of the following statements is correct about net operating income (NOI)?

a) Under absorption costing, NOI for Year 2 and Year 3 would be the same

b) Under absorption costing, NOI for Year 3 and Year 4 would be the same

c) Absorption costing NOI would exceed variable costing NOI in Year 1

d) Variable costing NOI would exceed absorption costing NOI in Year 2

e) Under variable costing, NOI for Year 3 and Year 4 would be the same

Flubber Inc. makes a bouncy clay alternative. Their Boing-Boing brand clay requires two gallons of whole milk for each package. Selected data from the Flubbers master budget for the next quarter are shown below:

	April	May	June
Budgeted sales (units)	32,000	37,000	30,000
Budgeted production (units)	28,000	30,000	36,000
Desired ending inventory of milk (gallons)	3,000	3,600	2,700

How many gallons of milk should Flubber Inc. purchase in May?