Question 1

When inventories increase, the direct costing income statement will report a lower net income than the net income reported under absorption costing.

Accepted Answer

A) True 
 B)False

Question 2

Match between columns
                        Premises:  Costs that the segment manager can control
 Sales minus the variable cost of goods sold
 A cost that has been incurred and will not change as a result of a decision
 The accounting procedure whereby all manufacturing costs, including fixed costs, are included in the cost of goods manufactured
 Potential earnings or benefits that are given up because a certain course of action is take
 The difference in cost between one alternative and another
 The manufacturing margin minus variable operating expenses
 Costs not directly traceable to a specific segment of a business
 The accounting procedure whereby only variable costs are included in the cost of goods manufactured, and fixed manufacturing costs are written off as expenses in the period in which they are incurred
 Revenues minus variable costs

Accepted Answer

The Answer of Absorption costing and Common costs and Contribution is...

Question 3

Costmore Manufacturing has provided the following operating results for its first year operations:
$\begin{array}{lr}
\text { Beginning inventory of finished goods } & 0 \
\text { Units produced (no work in process) } & 22,000 \
\text { Units sold } & 18,000 \
\text { Units in ending inventory of finished goods } & 4,000\\text { Sales price }&\$55\text { per unit }\
\text { Variable manufacturing costs }&\$25\text { per unit }\\text { manufactured Variable selling and }\text { administrative expenses }&\$ 7 \text { per unit }\\text { sold Fixed manufacturing }\text { costs for the year } & \$ 110,000 \
\text { Fixed selling and administrative expenses for the year } & \$ 124,000
\end{array}$
-
Using the absorption costing method, the value of ending inventory of finished goods is:

Accepted Answer

A) $100,000 
B) $140,000 
C) $120,000 
D) $220,000 
A) $100,000 
B) $140,000 
C) $120,000 
D) $220,000

Question 4

In its first year of operations, a company has sales of $158,000, ending finished goods inventory of $11,500, variable manufacturing costs of $49,000, and fixed manufacturing costs of $31,000 for the year. The company pays 9% commission to its sales force and has fixed selling and administrative expenses of $27,000 annually. The company has no other variable expenses.
Assuming the company uses direct costing, the net income for the year is

Accepted Answer

A) $52,280. 
B) $83,280. 
C) $25,280. 
D) $48,280. 
A) $52,280. 
B) $83,280. 
C) $25,280. 
D) $48,280.

Question 5

Manufacturing margin less the sum of variable manufacturing overhead and variable selling and administrative expenses equals marginal income.

Accepted Answer

A) True 
 B)False

Question 6

Timkon Manufacturing has provided the following operating results for its recent operations:
$\begin{array}{lr}
\text { Beginning inventory of finished goods } & 4,500 \
\text { Units produced (no work in process) } & 10,000 \
\text { Units sold } & 12,500 \
\text { Units in ending inventory of finished goods } & 2,000\\text { Sales price }&\$ 50 \text { per unit }\
\text { Variable manufacturing costs }&\$ 20 \text { per unit }\\text { manufactured Variable selling expenses }&\$ 2 \text { per unit sold }\\text { Variable administrative expenses } & \$ 1 \text { per unit sold Fixed manufacturing } \
\text { costs for the year } & \$ 100,000 \
\text { Fixed selling expenses for the year } & \$ 52,000 \
\text { Fixed administrative expenses for the year } & \$ 84,000
\end{array}$
-
Using the absorption method, cost of goods manufactured for the year is:

Accepted Answer

A) $200,000 
B) $300,000 
C) $230,000 
D) $330,000 
A) $200,000 
B) $300,000 
C) $230,000 
D) $330,000

Question 7

Which of the following costs can be found in a firm's accounting records?

Accepted Answer

A) opportunity costs 
B) sunk costs 
C) incremental costs 
D) differential costs 
A) opportunity costs 
B) sunk costs 
C) incremental costs 
D) differential costs

Question 8

Which of the following is not relevant in decision making?

Accepted Answer

A) sunk costs 
B) differential costs 
C) opportunity costs 
D) variable costs 
A) sunk costs 
B) differential costs 
C) opportunity costs 
D) variable costs

Question 9

Which inventory costing system is required by GAAP for financial reporting purposes?

Accepted Answer

A) absorption costing 
B) standard costing 
C) direct costing 
D) variable costing 
A) absorption costing 
B) standard costing 
C) direct costing 
D) variable costing

Question 10

In managerial decisions, nonmanufacturing costs can be ignored.

Accepted Answer

A) True 
 B)False

Question 11

The data given below is taken from the budgeted income statement of the Arrow Corporation for 2019. It shows the projected net income or loss for each of the firm's three products. Management is concerned about the budgeted loss for Product C and wants to discontinue it. Prepare an analysis indicating the effects of discontinuing Product C. Based on the analysis, indicate the decision that should be made.
   
 $\begin{array}{lllll}
\text { Mfg. Overhead } & 3,500&8,000&3,000&14,500 \
\text { Total } & \$ 15,500&\$35,000&\$13,000&\$63,000\\text { Gross Profit on Sales } & \$ 19,500 & \$ 55,000 & \$ 7,000 & \$ 81,500 \
\text { Operating Expenses } & 13,000 & 24,000 & 10,000 & 47,000\\text { Net Income or (Loss) }&\$6,500&\$31,0100&\$(3,000)&\$34,500
\end{array}$ 
Additional information:
(a.)Materials and labor are variable costs.
(b.)Total manufacturing overhead is applied at 50 percent of the direct labor costs. (c.)Variable overhead is 10 percent of the direct labor costs.
(d.)Fixed overhead totals $11,600 a year.
(e.)Operating expenses include variable costs at 20 percent of sales dollars. (f.)Fixed operating expenses total $18,000.
(g.)Fixed overhead costs and fixed operating expenses are expected to continue if Product C is eliminated.

Accepted Answer

ARROW CORPORATION
Income Statement
Year

Question 12

Under the contribution margin approach, common costs are deducted from the total of all segment contributions to determine the company's profit.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is the first step in the decision-making process?

Accepted Answer

A) Evaluate the cost and revenue data 
B) Identify workable alternatives 
C) Consider appropriate nonfinancial factors 
D) Define the problem 
A) Evaluate the cost and revenue data 
B) Identify workable alternatives 
C) Consider appropriate nonfinancial factors 
D) Define the problem

Question 14

The increase in a cost from one alternative to another is called a(n)---------------cost.

Accepted Answer

The answer of The increase in a cost from one...

Question 15

When the balance in ending finished goods inventory increases, net income under absorption costing

Accepted Answer

A) is lower than under direct costing. 
B) is the same under direct costing. 
C) is higher than under direct costing. 
D) is unaffected by the increase. 
A) is lower than under direct costing. 
B) is the same under direct costing. 
C) is higher than under direct costing. 
D) is unaffected by the increase.

Question 16

If a segment of a business is expected to produce an annual contribution margin of $30,000 but is also expected to incur controllable fixed costs of about $40,000 annually, that segment should probably be discontinued.

Accepted Answer

A) True 
 B)False

Question 17

Income statements prepared on an absorption-costing basis are usually more useful for internal decision making than income statements prepared on a direct costing basis.

Accepted Answer

A) True 
 B)False

Question 18

Fixed costs are associated with the capacity to produce goods, not to the actual goods produced.

Accepted Answer

A) True 
 B)False

Question 19

Timkon Manufacturing has provided the following operating results for its recent operations:
$\begin{array}{lr}
\text { Beginning inventory of finished goods } & 4,500 \
\text { Units produced (no work in process) } & 10,000 \
\text { Units sold } & 12,500 \
\text { Units in ending inventory of finished goods } & 2,000\\text { Sales price }&\$ 50 \text { per unit }\
\text { Variable manufacturing costs }&\$ 20 \text { per unit }\\text { manufactured Variable selling expenses }&\$ 2 \text { per unit sold }\\text { Variable administrative expenses } & \$ 1 \text { per unit sold Fixed manufacturing } \
\text { costs for the year } & \$ 100,000 \
\text { Fixed selling expenses for the year } & \$ 52,000 \
\text { Fixed administrative expenses for the year } & \$ 84,000
\end{array}$
-
Assuming beginning inventory cost per unit is not different than ending inventory cost per unit, the value of the ending inventory under direct costing is:

Accepted Answer

A) $60,000 
B) $46,000 
C) $40,000 
D) $63,000 
A) $60,000 
B) $46,000 
C) $40,000 
D) $63,000

Question 20

The contribution margin income statement with segment margin information assists management in making sound decisions regarding whether to drop, keep or add a segment.

Accepted Answer

A) True 
 B)False

Exam 30: Cost-Revenue Analysis for Decision Making

When inventories increase, the direct costing income statement will report a lower net income than the net income reported under absorption costing.

Manufacturing margin less the sum of variable manufacturing overhead and variable selling and administrative expenses equals marginal income.

Which of the following costs can be found in a firm's accounting records?

Which of the following is not relevant in decision making?

Which inventory costing system is required by GAAP for financial reporting purposes?

In managerial decisions, nonmanufacturing costs can be ignored.

Under the contribution margin approach, common costs are deducted from the total of all segment contributions to determine the company's profit.

Which of the following is the first step in the decision-making process?

The increase in a cost from one alternative to another is called a(n)---------------cost.

When the balance in ending finished goods inventory increases, net income under absorption costing

If a segment of a business is expected to produce an annual contribution margin of $30,000 but is also expected to incur controllable fixed costs of about $40,000 annually, that segment should probably be discontinued.

Income statements prepared on an absorption-costing basis are usually more useful for internal decision making than income statements prepared on a direct costing basis.

Fixed costs are associated with the capacity to produce goods, not to the actual goods produced.

The contribution margin income statement with segment margin information assists management in making sound decisions regarding whether to drop, keep or add a segment.

Accounting: The Language of Business

Analyzing Business Transactions

Analyzing Business Transactions Using T Accounts

The General Journal and the General Ledger

Adjustments and the Worksheet

Closing Entries and Teh Postclosing Trial Balance

Accounting for Sales and Accounts Receivable

Accounting for Purchases and Accounts Payable

Cash Receipts, Cash Payments, and Banking Procedures

Payroll Computations, Records, and Payment

Payroll Taxes, Deposits, and Reports

Accruals, Deferrals, and the Worksheet

Financial Statements and Closing Procedures

Accounting Principles and Reporting Standards

Accounts Receivable and Uncollectible Accounts

Notes Payable and Notes Receivable

Merchandise Inventory

Property, Plant, and Equipment

Accounting for Partnerships

Corporations: Formation and Capital Stock Transactions

Corporate Earnings and Capital Transactions

Long-Term Bonds

Financial Statement Analysis

The Statement of Cash Flows

Departmentalized Profit and Cost Centers

Accounting for Manufacturing Activities

Job Order Cost Accounting

Process Cost Accounting

Controlling Manufacturing Costs: Standard Costs

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