Exam 9: Inventory Costing and Capacity Analysis

At the end of the accounting period Bumsted Corporation reports operating income of $30,000. If Bumstead's inventory levels decrease during the accounting period

Throughput costing considers only direct materials and direct manufacturing labor to be truly variable costs.

The gross-margin format of the income statement:

Theoretical capacity is the capacity level that represents what the firm is able to obtain under reasonable circumstances.

The gross-margin format of the income statement highlights the lump sum of fixed manufacturing costs.

The production-volume variance is affected by the choice of capacity concept used to determine the denominator level.

When the unit level of inventory decreases during an accounting period, operating income is lower under variable costing than absorption costing.

Moore Company prepared the following absorption-costing income statement for the year ended May 31, 2011. Additional information follows: Selling and administrative expenses include $1.50 of variable cost per unit sold. There was no beginning inventory, and 8,750 units were produced. Variable manufacturing costs were $11 per unit. Actual fixed costs were equal to budgeted fixed costs. Required: Prepare a variable-costing income statement for the same period.