Exam 9: Income Effects of Denominator Level on Inventory Valuation

Changes in inventory levels do not affect income amounts between variable and absorption costing because the difference in accounting for fixed manufacturing overhead offsets the affect.

Absorption costing prevents managers from increasing production to levels above customer demand, as a means of inflating operating income.

Answer the following question(s) using the information below. Marie's Decorating produces and sells a mantel clock for $100 per unit. In 2012, 100,000 clocks were produced and 80,000 were sold. Other information for the year includes: -What is the inventoriable cost per unit using absorption costing?

Direct costing is a perfect way to describe the variable-costing inventory method.

Answer the following question(s) using the information below. Peggy's Pillows produces and sells a decorative pillow for $75.00 per unit. In the first month of operation, 2,000 units were produced and 1,750 units were sold. Actual fixed costs are the same as the amount budgeted for the month. Other information for the month includes: -What is cost of goods sold using variable costing?

Which of the following is true concerning throughput costing?

The period-to-period change in operating income under variable costing is driven by unit level of sales, if the contribution margin is constant.

What is the Car Tune's September cost of goods sold amount if absorption costing is used?

Each unit in inventory under absorption costing absorbs fixed manufacturing costs.

Absorption costing can be criticized as a method that encourages managers to make decisions that may be contrary to the long-term interest of the company.

Determining the "right" level of capacity is one of the most strategic and difficult decisions managers face.

The Canada Revenue Agency requires companies to use practical capacity as the denominator-level concept.

Variable costing does not include variable indirect manufacturing costs as inventorial costs.

What are Car Tune's appropriate period costs for September if variable costing is used?

The following data are available for Ruggles Company for the year ended September 30, 2012. Sales: Manufacturing costs incurred: Nonmanufacturing costs incurred: Required: a. Determine operating income using the variable costing approach. b. Determine operating income using the absorption costing approach. c. Explain why the income was different each year using the two methods. Show computations.

Answer the following question(s) using the information below. Greene Manufacturing incurred the following expenses during 2012: -What will be the break-even point if variable costing is used?

Answer the following question(s) using the information below. Peggy's Pillows produces and sells a decorative pillow for $75.00 per unit. In the first month of operation, 2,000 units were produced and 1,750 units were sold. Actual fixed costs are the same as the amount budgeted for the month. Other information for the month includes: -What is operating income using variable costing?

Using ________ capacity fixes the cost of capacity at the cost of supplying the capacity regardless of the demand for capacity.

The budgeted fixed manufacturing cost rate is the lowest for

Answer the following question(s) using the information below. Heinrich Corporation budgeted fixed manufacturing costs of $6,000 during 2012. Other information for 2012 includes: The company uses absorption costing and the fixed manufacturing cost rate is based on the budgeted denominator level. Manufacturing variances are closed to cost of goods sold. -Operating income using absorption costing will be ________ than operating income if using variable costing.