Question 1

Absorption costing is the required inventory method for external financial reporting in most countries.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following statements is true of absorption costing?

Accepted Answer

A)  Absorption costing allocates fixed manufacturing overhead to actual units produced during the period. 
B)  Absorption costing carries over nonmanufacturing costs to the future periods. 
C)  Absorption costing shows the same level of profit as variable costing irrespective of the level of inventories. 
D)  Absorption costing allocates total manufacturing cost using the budgeted level of production for a particular year. 
A)  Absorption costing allocates fixed manufacturing overhead to actual units produced during the period. 
B)  Absorption costing carries over nonmanufacturing costs to the future periods. 
C)  Absorption costing shows the same level of profit as variable costing irrespective of the level of inventories. 
D)  Absorption costing allocates total manufacturing cost using the budgeted level of production for a particular year.

Question 3

Kennywood Inc., a manufacturing firm, is able to produce 1,000 pairs of pants per hour, at maximum efficiency. There are three eight-hour shifts each day. Due to unavoidable operating interruptions, production averages 825 units per hour. The plant actually operates only 27 days per month. Based on the current budget, Kennywood estimates that it will be able to sell only 503,000 units due to the entry of a competitor with aggressive marketing capabilities. But the demand is unlikely to be affected in future and will be around 518,000. Assume the month has 30 days. What is the theoretical capacity for the month?

Accepted Answer

A)  222,750 units 
B)  720,000 units 
C)  534,600 units 
D)  648,000 units 
A)  222,750 units 
B)  720,000 units 
C)  534,600 units 
D)  648,000 units

Question 4

Ms. Sophia Jones, the company president, has heard that there are multiple breakeven points for every product. She does not believe this and has asked you to provide the evidence of such a possibility. Some information about the company for 2017 is as follows:
 
What are breakeven sales in units using variable costing? (Round any intermediary calculations to the nearest cent and your final answer up to the next whole unit.)

Accepted Answer

A)  12,404 units 
B)  6,383 units 
C)  11,287 units 
D)  10,223 units 
A)  12,404 units 
B)  6,383 units 
C)  11,287 units 
D)  10,223 units

Question 5

The marketing manager's performance evaluation is most fair when based on a denominator level using ________ as it is the principal short-run planning and control tool.

Accepted Answer

A)  practical capacity 
B)  theoretical capacity 
C)  master-budget capacity utilization 
D)  normal capacity utilization 
A)  practical capacity 
B)  theoretical capacity 
C)  master-budget capacity utilization 
D)  normal capacity utilization

Question 6

Practical capacity is the level of capacity that reduces theoretical capacity by considering unavoidable operating interruptions, such as scheduled maintenance time and shutdowns for holidays.

Accepted Answer

A) True 
 B)False

Question 7

Kennywood Inc., a manufacturing firm, is able to produce 1,300 pairs of pants per hour, at maximum efficiency. There are three eight-hour shifts each day. Due to unavoidable operating interruptions, production averages 850 units per hour. The plant actually operates only 28 days per month. Based on the current budget, Kennywood estimates that it will be able to sell only 500,000 units due to the entry of a competitor with aggressive marketing capabilities. But the demand is unlikely to be affected in future and will be around 519,000. Assume the month has 30 days. What is the master-budget capacity utilization level for this budget period?

Accepted Answer

A)  500,000 units 
B)  519,000 units 
C)  523,800 units 
D)  555,400 units 
A)  500,000 units 
B)  519,000 units 
C)  523,800 units 
D)  555,400 units

Question 8

When production quantity exceeds sales, throughput costing results in reporting lower operating income than variable costing.

Accepted Answer

A) True 
 B)False

Question 9

________ is a method of inventory costing in which all variable manufacturing costs and all fixed manufacturing costs are included as inventoriable costs.

Accepted Answer

A)  Variable costing 
B)  Mixed costing 
C)  Absorption costing 
D)  Standard costing 
A)  Variable costing 
B)  Mixed costing 
C)  Absorption costing 
D)  Standard costing

Question 10

Jean Peck's Furniture manufactures tables for hospitality sector. It takes only bulk orders and each table is sold for $500 after negotiations. In the month of January, it manufactures 3,000 tables and sells 2,600 tables. Actual fixed costs are the same as the amount of fixed costs budgeted for the month.
The following information is provided for the month of January:
 
At the end of the month Jean Peck's Furniture has an ending inventory of finished goods of 400 units. The company also incurs a sales commission of $13 per unit.
What is the operating income when using absorption costing? (Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar.)

Accepted Answer

A)  $828,000 
B)  $858,000 
C)  $794,200 
D)  $824,200 
A)  $828,000 
B)  $858,000 
C)  $794,200 
D)  $824,200

Question 11

Using practical capacity as the denominator level sets the cost of capacity at the cost of supplying the capacity, regardless of the demand for the capacity.

Accepted Answer

A) True 
 B)False

Question 12

Venus Corporation incurred fixed manufacturing costs of $6,300 during 2017. Other information for 2017 includes:
The budgeted denominator level is 1,600 units.
Units produced total 760 units.
Units sold total 640 units.
Beginning inventory was zero.
The company uses variable costing and the fixed manufacturing cost rate is based on the budgeted denominator level. Manufacturing variances are closed to cost of goods sold.
Fixed manufacturing costs included in ending inventory total ________.

Accepted Answer

A)  $995 
B)  $3,308 
C)  $473 
D)  $0 
A)  $995 
B)  $3,308 
C)  $473 
D)  $0

Question 13

Which of the following statements is true?

Accepted Answer

A)  When production is equal to sales, operating income will be greater under variable costing than under absorption costing. 
B)  When production is greater than sales, operating income will be lower under variable costing than absorption costing. 
C)  When production is less than sales, operating income is higher under absorption costing than variable costing. 
D)  When production is greater than sales, operating income is greater under absorption cost than under variable costing. 
A)  When production is equal to sales, operating income will be greater under variable costing than under absorption costing. 
B)  When production is greater than sales, operating income will be lower under variable costing than absorption costing. 
C)  When production is less than sales, operating income is higher under absorption costing than variable costing. 
D)  When production is greater than sales, operating income is greater under absorption cost than under variable costing.

Question 14

Venus Corporation incurred fixed manufacturing costs of $6,300 during 2017. Other information for 2017 includes:
The budgeted denominator level is 1,600 units.
Units produced total 770 units.
Units sold total 600 units.
Beginning inventory was zero.
The company uses variable costing and the fixed manufacturing cost rate is based on the budgeted denominator level. Manufacturing variances are closed to cost of goods sold.
Fixed manufacturing costs expensed on the income statement (excluding adjustments for variances) total ________.

Accepted Answer

A)  $2,363 
B)  $4,909 
C)  $6,300 
D)  $0 
A)  $2,363 
B)  $4,909 
C)  $6,300 
D)  $0

Question 15

There is no output-level variance for variable costing, when ________.

Accepted Answer

A)  the inventory level decreases during the period 
B)  the inventory level increases during the period 
C)  fixed manufacturing overhead is allocated to work in process 
D)  fixed manufacturing overhead is not allocated to work in process 
A)  the inventory level decreases during the period 
B)  the inventory level increases during the period 
C)  fixed manufacturing overhead is allocated to work in process 
D)  fixed manufacturing overhead is not allocated to work in process

Question 16

Discuss the three methods to dispose of production volume variance.

Accepted Answer

1) Adjusted allocation-rate approach - T

Question 17

Normal capacity utilization is the level of capacity that satisfies average customer demand over a period and takes into account seasonal, cyclical, and trend factors.

Accepted Answer

A) True 
 B)False

Question 18

If the unit level of inventory increases during an accounting period, then ________.

Accepted Answer

A)  less operating income will be reported under absorption costing than variable costing 
B)  more operating income will be reported under absorption costing than variable costing 
C)  operating income will be the same under absorption costing and variable costing 
D)  the exact effect on operating income cannot be determined 
A)  less operating income will be reported under absorption costing than variable costing 
B)  more operating income will be reported under absorption costing than variable costing 
C)  operating income will be the same under absorption costing and variable costing 
D)  the exact effect on operating income cannot be determined

Question 19

Theoretical capacity is unattainable in the real world.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is a reason for companies to use absorption costing for internal accounting?

Accepted Answer

A)  It is the required inventory method for internal accounting as per GAAP. 
B)  It measures the cost of all resources, whether manufacturing or nonmanufacturing, necessary to produce inventory. 
C)  It does not take into account fixed manufacturing overhead while valuing inventory and hence is more suited for decision making. 
D)  It can help prevent managers from taking actions that make their performance measure look good but that hurt the income they report to shareholders. 
A)  It is the required inventory method for internal accounting as per GAAP. 
B)  It measures the cost of all resources, whether manufacturing or nonmanufacturing, necessary to produce inventory. 
C)  It does not take into account fixed manufacturing overhead while valuing inventory and hence is more suited for decision making. 
D)  It can help prevent managers from taking actions that make their performance measure look good but that hurt the income they report to shareholders.

Absorption costing is the required inventory method for external financial reporting in most countries.

Which of the following statements is true of absorption costing?

The marketing manager's performance evaluation is most fair when based on a denominator level using ________ as it is the principal short-run planning and control tool.

Practical capacity is the level of capacity that reduces theoretical capacity by considering unavoidable operating interruptions, such as scheduled maintenance time and shutdowns for holidays.

When production quantity exceeds sales, throughput costing results in reporting lower operating income than variable costing.

________ is a method of inventory costing in which all variable manufacturing costs and all fixed manufacturing costs are included as inventoriable costs.

Using practical capacity as the denominator level sets the cost of capacity at the cost of supplying the capacity, regardless of the demand for the capacity.

Which of the following statements is true?

There is no output-level variance for variable costing, when ________.

Discuss the three methods to dispose of production volume variance.

Normal capacity utilization is the level of capacity that satisfies average customer demand over a period and takes into account seasonal, cyclical, and trend factors.

If the unit level of inventory increases during an accounting period, then ________.

Theoretical capacity is unattainable in the real world.

Which of the following is a reason for companies to use absorption costing for internal accounting?

The Manager and Management Accounting

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Activity-Based Management

Master Budget and Responsibility Accounting

Flexible Budgets, Direct-Cost Variances, and Management Control

Flexible Budgets, Overhead Cost Variances, and Management Control

Determining How Costs Behave

Decision Making and Relevant Information

Strategy, Balanced Scorecard, and Strategic Profitability Analysis

Pricing Decisions and Cost Management

Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis

Allocation of Support-Department Costs, Common Costs, and Revenues

Cost Allocation: Joint Products and Byproducts

Process Costing

Spoilage, Rework, and Scrap

Balanced Scorecard: Quality and Time

Inventory Management, Just-in-Time, and Simplified Costing Methods

Capital Budgeting and Cost Analysis

Management Control Systems, Transfer Pricing, and Multinational Considerations

Performance Measurement, Compensation, and Multinational Considerations

Filters

Exam 9: Inventory Costing and Capacity Analysis

Absorption costing is the required inventory method for external financial reporting in most countries.

Which of the following statements is true of absorption costing?

The marketing manager's performance evaluation is most fair when based on a denominator level using ________ as it is the principal short-run planning and control tool.

Practical capacity is the level of capacity that reduces theoretical capacity by considering unavoidable operating interruptions, such as scheduled maintenance time and shutdowns for holidays.

When production quantity exceeds sales, throughput costing results in reporting lower operating income than variable costing.

________ is a method of inventory costing in which all variable manufacturing costs and all fixed manufacturing costs are included as inventoriable costs.

Using practical capacity as the denominator level sets the cost of capacity at the cost of supplying the capacity, regardless of the demand for the capacity.

Which of the following statements is true?

There is no output-level variance for variable costing, when ________.

Discuss the three methods to dispose of production volume variance.

Normal capacity utilization is the level of capacity that satisfies average customer demand over a period and takes into account seasonal, cyclical, and trend factors.

If the unit level of inventory increases during an accounting period, then ________.

Theoretical capacity is unattainable in the real world.

Which of the following is a reason for companies to use absorption costing for internal accounting?

The Manager and Management Accounting

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Activity-Based Management

Master Budget and Responsibility Accounting

Flexible Budgets, Direct-Cost Variances, and Management Control

Flexible Budgets, Overhead Cost Variances, and Management Control

Determining How Costs Behave

Decision Making and Relevant Information

Strategy, Balanced Scorecard, and Strategic Profitability Analysis

Pricing Decisions and Cost Management

Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis

Allocation of Support-Department Costs, Common Costs, and Revenues

Cost Allocation: Joint Products and Byproducts

Process Costing

Spoilage, Rework, and Scrap

Balanced Scorecard: Quality and Time

Inventory Management, Just-in-Time, and Simplified Costing Methods

Capital Budgeting and Cost Analysis

Management Control Systems, Transfer Pricing, and Multinational Considerations

Performance Measurement, Compensation, and Multinational Considerations

Filters