Exam 9: Inventory Costing and Capacity Analysis

________ is based on the level of capacity utilization that satisfies average customer demand over periods generally longer than one year.

In variable costing, all nonmanufacturing costs are subtracted from contribution margin.

If activity based cost accounting is used to allocate capacity related costs, normal capacity measures should be used.

Absorption costing helps managers to artificially inflate profits by encouraging the production of products that absorb the highest amount of fixed manufacturing costs.

Under variable costing, if a manager's bonus is tied to operating income, then increasing inventory levels compared to last year would result in ________.

If the variable manufacturing overhead is $50 per unit for a company, the lowest budgeted manufacturing cost per unit can be obtained by using normal capacity utilization as the denominator level capacity.

Which of the following is true of variable costing?

To reduce the undesirable incentives to build up inventories that absorption costing can create, a number of companies use variable costing for internal reporting.

Absorption costing enables managers to increase operating income by increasing the unit level of sales, as well as by producing more units.

For benchmarking purposes for long-range planning, it is best to use master-budget capacity because all competitors use about the same about of capacity for production.