Question 1

Using practical capacity is best for evaluating the marketing manager's performance for a particular year.

Accepted Answer

A) True 
 B)False

Question 2

What is throughput costing? What advantages is it purported to have over variable and absorption costing?

Accepted Answer

Throughput costing treats all costs exce

Question 3

The distinction between absorption costing and variable costing is most important for which type of industry?

Accepted Answer

A)  manufacturing 
B)  marketing 
C)  retail 
D)  service 
E)  educational 
A)  manufacturing 
B)  marketing 
C)  retail 
D)  service 
E)  educational

Question 4

Which of the following combination of costing systems assigns the same direct labour cost to inventory?

Accepted Answer

A)  variable-throughput 
B)  variable-absorption 
C)  throughput-absorption 
D)  normal-standard 
E)  actual-standard 
A)  variable-throughput 
B)  variable-absorption 
C)  throughput-absorption 
D)  normal-standard 
E)  actual-standard

Question 5

From the perspective of long-run product costing it is best to use

Accepted Answer

A)  master-budget capacity utilization to highlight unused capacity. 
B)  normal capacity utilization for benchmarking purposes. 
C)  practical capacity for pricing decisions. 
D)  theoretical capacity for performance evaluation. 
E)  supply capacity to satisfy customer demand. 
A)  master-budget capacity utilization to highlight unused capacity. 
B)  normal capacity utilization for benchmarking purposes. 
C)  practical capacity for pricing decisions. 
D)  theoretical capacity for performance evaluation. 
E)  supply capacity to satisfy customer demand.

Question 6

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.
-Which of the following is an example of a drawback of using absorption costing?

Accepted Answer

A)  It allows management the ability to manipulate operating income via production schedules. 
B)  An inventoried cost will eventually become part of cost of goods sold. 
C)  The company's sales level drives the production schedules. 
D)  A manager may increase maintenance activities above the budgeted level for the current period. 
E)  Expensing fixed costs as period costs reducing operating income. 
A)  It allows management the ability to manipulate operating income via production schedules. 
B)  An inventoried cost will eventually become part of cost of goods sold. 
C)  The company's sales level drives the production schedules. 
D)  A manager may increase maintenance activities above the budgeted level for the current period. 
E)  Expensing fixed costs as period costs reducing operating income.

Question 7

What is Honda Heaven's inventory cost per box using variable costing?

Accepted Answer

A)  $9.50 
B)  $10.00 
C)  $12.50 
D)  $13.40 
E)  $15.40 
A)  $9.50 
B)  $10.00 
C)  $12.50 
D)  $13.40 
E)  $15.40

Question 8

Variable costing will generally report less operating income than absorption costing when the inventory level decreases.

Accepted Answer

A) True 
 B)False

Question 9

Which denominator-level concept results in the highest amount of fixed manufacturing overhead costs per unit of ending inventory?

Accepted Answer

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

Question 10

Explain three methods under absorption costing that managers can use to improve operating income.

Accepted Answer

1) A plant manager may switch to manufac

Question 11

A manufacturing firm is able to produce 2,000 pairs of shoes per hour, at maximum efficiency. There are three eight-hour shifts each day. Production is actually 1,600 pairs of shoes per hour due to unavoidable operating interruptions. The plant is expected to run every day but was only able to operate for 27 days in September. What is the theoretical capacity for the month of September?

Accepted Answer

A)  1,488,000 shoes 
B)  1,440,000 shoes 
C)  1,036,800 shoes 
D)  1,296,000 shoes 
E)  1,152,000 shoes 
A)  1,488,000 shoes 
B)  1,440,000 shoes 
C)  1,036,800 shoes 
D)  1,296,000 shoes 
E)  1,152,000 shoes

Question 12

The distinction between variable costs and fixed costs is highlighted in variable costing via the contribution-margin format while the distinction between manufacturing and nonmanufacturing costs is central to absorption and is highlighted by the gross-margin format.

Accepted Answer

A) True 
 B)False

Question 13

Variable costing includes all direct manufacturing costs and all manufacturing overhead costs.

Accepted Answer

A) True 
 B)False

Question 14

Master-budget capacity utilization can be more reliably estimated than normal capacity utilization.

Accepted Answer

A) True 
 B)False

Question 15

When large differences exist between practical capacity and master-budget capacity utilization, companies can classify part of the large difference as

Accepted Answer

A)  production-volume variance. 
B)  sales volume variance. 
C)  normal capacity utilization. 
D)  theoretical capacity utilization. 
E)  planned unused capacity. 
A)  production-volume variance. 
B)  sales volume variance. 
C)  normal capacity utilization. 
D)  theoretical capacity utilization. 
E)  planned unused capacity.

Question 16

Theoretical capacity is rarely used to calculate the budgeted fixed manufacturing cost per case because it departs significantly from the real capacity available to a company.

Accepted Answer

A) True 
 B)False

Question 17

The following information pertains to ABC Corporation:   What is the difference between absorption costing operating income and variable costing operating income?

Accepted Answer

A)  $500 
B)  $5,000 
C)  $10,000 
D)  $20,500 
E)  $21,000 
A)  $500 
B)  $5,000 
C)  $10,000 
D)  $20,500 
E)  $21,000

Question 18

Which of the following is true concerning operating income calculated under variable costing as compared to absorption costing?

Accepted Answer

A)  Operating income is lower under variable costing when production exceeds sales. 
B)  Operating income is higher under variable costing when production exceeds sales. 
C)  Operating income is lower under variable costing when sales exceeds production only if there is a production-volume variance. 
D)  operating income is higher under variable costing when production exceeds sales only if there is a production-volume variance. 
E)  The relationship between production and sales has no bearing on the differences in operating income between the two methods. 
A)  Operating income is lower under variable costing when production exceeds sales. 
B)  Operating income is higher under variable costing when production exceeds sales. 
C)  Operating income is lower under variable costing when sales exceeds production only if there is a production-volume variance. 
D)  operating income is higher under variable costing when production exceeds sales only if there is a production-volume variance. 
E)  The relationship between production and sales has no bearing on the differences in operating income between the two methods.

Question 19

Variable costs of value chain areas other than manufacturing are typically written off as period costs regardless of the costing method used.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following variances exists only under absorption costing?

Accepted Answer

A)  spending variance 
B)  efficiency variances 
C)  sales-volume variance 
D)  variable overhead flexible budget variance 
E)  production-volume variance 
A)  spending variance 
B)  efficiency variances 
C)  sales-volume variance 
D)  variable overhead flexible budget variance 
E)  production-volume variance

Exam 9: Income Effects of Denominator Level on Inventory Valuation

Using practical capacity is best for evaluating the marketing manager's performance for a particular year.

What is throughput costing? What advantages is it purported to have over variable and absorption costing?

The distinction between absorption costing and variable costing is most important for which type of industry?

Which of the following combination of costing systems assigns the same direct labour cost to inventory?

From the perspective of long-run product costing it is best to use

What is Honda Heaven's inventory cost per box using variable costing?

Variable costing will generally report less operating income than absorption costing when the inventory level decreases.

Which denominator-level concept results in the highest amount of fixed manufacturing overhead costs per unit of ending inventory?

Explain three methods under absorption costing that managers can use to improve operating income.

The distinction between variable costs and fixed costs is highlighted in variable costing via the contribution-margin format while the distinction between manufacturing and nonmanufacturing costs is central to absorption and is highlighted by the gross-margin format.

Variable costing includes all direct manufacturing costs and all manufacturing overhead costs.

Master-budget capacity utilization can be more reliably estimated than normal capacity utilization.

When large differences exist between practical capacity and master-budget capacity utilization, companies can classify part of the large difference as

Theoretical capacity is rarely used to calculate the budgeted fixed manufacturing cost per case because it departs significantly from the real capacity available to a company.

The following information pertains to ABC Corporation: What is the difference between absorption costing operating income and variable costing operating income?

Which of the following is true concerning operating income calculated under variable costing as compared to absorption costing?

Variable costs of value chain areas other than manufacturing are typically written off as period costs regardless of the costing method used.

Which of the following variances exists only under absorption costing?

The Accountants Vital Role in Decision Making

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Management

Master Budget and Responsibility Accounting

Flexible Budgets, Variances, and Management Control: I

Flexible Budgets, Variances, and Management Control: II

Quantitative Analyses of Cost Functions

Decision Making and Relevant Information

Pricing Decisions, Product Profitability Decisions, and Cost Management

Strategy, Balanced Scorecard, and Profitability Analysis

Period Cost Allocation

Cost Allocation: Joint Products and Byproducts

Revenue and Customer Profitability Analysis

Process Costing

Spoilage, Rework, and Scrap

Cost Management: Quality, Time, and the Theory of Constraints

Inventory Cost Management Strategies

Capital Budgeting: Methods of Investment Analysis

Capital Budgeting: a Closer Look

Transfer Pricing and Multinational Management Control Systems

Multinational Performance Measurement and Compensation

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