Saylor BUS105 Exam With Confidence Using Practice Dumps

Comprehensive and Detailed Explanation:

The key difference between absorption and variable costing is how fixed manufacturing overhead is treated:

Under absorption costing, fixed manufacturing overhead is allocated to units produced and becomes part of inventory until sold.

Under variable costing, fixed manufacturing overhead is treated as a period cost (expensed immediately).

Therefore, when:

→ All units produced are sold and no inventory remains or is carried over,

→ There’s no difference between how costs are treated under either method.

Option B matches this condition exactly—no beginning inventory, and all produced units are sold.

Answer: B

In differential analysis (also known as incremental analysis), only costs that differ between alternatives (i.e., relevant costs) are considered. Irrelevant costs—those that do not change as a result of the decision—are excluded.

Rent expenses are typically fixed and would not change whether a particular client is dropped or retained. Therefore, rent expenses are irrelevant to the decision and should be excluded from the analysis.

Relevant costs include:

Consulting fees (B) → Variable costs associated with servicing clients.

Wages payable (C) → May vary depending on staffing levels needed for client workload.

Project management costs (D) → If these are client-specific, they would vary and be relevant.

Saylor Academy – Managerial Accounting (BUS105), Unit 7:

“Relevant costs are those that differ between alternatives. Costs that remain the same regardless of the alternative chosen are irrelevant and should not be considered in the decision.”

(Source: Saylor.org – BUS105: Managerial Accounting, Unit 7, Section 7.1: Relevant Revenues and Costs)

Therefore, rent expenses (A) are the correct answer as they are fixed and irrelevant to this client-based decision.

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A credit balance in the manufacturing overhead account means overhead was overapplied (i.e., more overhead was applied than actually incurred).

If the balance is immaterial, it should be closed directly to COGS.

Journal Entry:

Debit Manufacturing Overhead $1,250

Credit Cost of Goods Sold $1,250

→ This decreases COGS because more overhead was applied than used.

Answer: A