Question 1

Answer the following questions using the information below:
Daniel Rubber Company produces a specialty item. Management has provided the following information:
 $\begin{array}{lr}
\text { Actual sales } & 110,000 \text { units } \
\text { Budgeted production } & 100,000 \text { units } \
\text { Selling price } & \$ 40.00 \text { per unit } \
& \
\text { Direct material costs } & \$ 8.00 \text { per unit } \
\text { Variable manufacturing overhead } & \$ 3.00 \text { per unit } \
\text { Variable ad ministrative costs } & \$ 5.00 \text { per unit } \
\text { Fixed manufacturing overhead } & \$ 4.00 \text { per unit }
\end{array}$
-What is the total throughput contribution?

Accepted Answer

A)  $2,640,000 
B)  $3,190,000 
C)  $3,520,000 
D)  $4,070,000

Question 2

________ is the level of capacity utilization that managers expect for the current budget period,which is typically one year.

Accepted Answer

A)  Practical capacity 
B)  Master-budget capacity utilization 
C)  Theoretical capacity 
D)  Normal capacity utilization

Question 3

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

Accepted Answer

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

Question 4

Match between columns
                        Premises: Reduces theoretical capacity by considering unavoidable operating interruptions
Producing at full efficiency all the time
Measures capacity levels in terms of demand
Level of capacity utilization that satisfies average customer demand over a period
Does not allow for plant maintenance
Engineering and human resource factors are important when estimating capacity
Level of capacity utilization that managers expect for the current budget period
Ideal goal of capacity utilization
Takes into account seasonal, cyclical, and trend factors
Measures capacity levels in terms of what a plant can supply

Accepted Answer

The Answer of Theoretical capacity and Practical capacity and Normal is...

Question 5

Given a constant contribution margin per unit and constant fixed costs,the period-to-period change in operating income under variable costing is driven solely by changes in the quantity of units actually manufactured.

Accepted Answer

A) True 
 B)False

Question 6

Explain how using master-budget capacity utilization for setting prices can lead to a downward demand spiral.

Accepted Answer

The answer of Explain how using master-budget capacity utilization for...

Question 7

Which of the following costs is inventoried when using absorption costing?

Accepted Answer

A)  variable selling costs 
B)  fixed administrative costs 
C)  variable manufacturing costs 
D)  fixed selling costs

Question 8

The following information pertains to Brian Stone Corporation: $\begin{array}{lr}
\text { Beginning fixed manufacturing overhead in inventory } & \$ 60,000 \
\text { Ending fixed manufacturing overhead in inventory } & 45,000 \
\text { Beginning variable manufacturing overhead in inventory } & \$ 30,000 \
\text { Ending variable manufacturing overhead in inventory } & 14,250 \
& \
\text { Fixed selling and administrative costs } & \$ 724,000 \
\text { Units produced } & 5,000 \text { units } \
\text { Units sold } & 4,800 \text { units }
\end{array}$ What is the difference between operating incomes under absorption costing and variable costing?

Accepted Answer

A)  $750 
B)  $7,500 
C)  $15,000 
D)  $30,750

Question 9

Kaiser Company just hired its fourth production manager in three years.All three previous managers had quit because they could not get the company above the break-even point,even though sales had increased somewhat each year.The company was operating at about 60 % of plant capacity.The flatware industry was growing,so increased sales were not out of the question.
I.R.Thinking took the job as manager of the production division with a very attractive salary package.After interviewing for the position,he proposed a salary and bonus package that would give him a very small salary but a large bonus if he took the operating income (using absorption costing)above the breakeven point during his very first year.
Required:
What do you think Mr.Thinking had in mind for increasing the company's operating income?

Accepted Answer

The answer of Kaiser Company just hired its fourth production...

Question 10

Ireland Corporation planned to be in operation for three years.
• During the first year,2015,it had no sales but incurred $240,000 in variable manufacturing expenses and $80,000 in fixed manufacturing expenses.
• In 2016,it sold half of the finished goods inventory from 20x1 for $200,000 but it had no manufacturing costs.
• In 2017,it sold the remainder of the inventory for $240,000,had no manufacturing expenses and went out of business.
• Marketing and administrative expenses were fixed and totaled $40,000 each year.
Required:
a.Prepare an income statement for each year using absorption costing.
b.Prepare an income statement for each year using variable costing.

Accepted Answer

The answer of Ireland Corporation planned to be in operation...

Question 11

Answer the following questions using the information below:
Greene Manufacturing incurred the following expenses during 2015:
 $$\begin{array} { l c } 
\text { Fixed manufacturing costs } & \$ 112,500 \
\text { Fixed nonmanufacturing costs } & \$ 87,500 \
\text { Unit selling price } & \$ 250 \
\text { Total unit cost } & \$ 100 \
\text { Variable manufacturing cost rate } & \$ 50 \
\text { Units produced } & 1,340 \text { units }
\end{array}$$
-What will be the breakeven point if variable costing is used?

Accepted Answer

A)  1,334 units 
B)  1,125 units 
C)  1,000 units 
D)  563 units

Question 12

The production-volume variance only exists under variable costing and not under absorption costing.

Accepted Answer

A) True 
 B)False

Question 13

Evaluating performance of managers over a long period,say over three-to five-years,helps to reduce undesirable buildup of inventories.

Accepted Answer

A) True 
 B)False

Question 14

As a company reduces its inventory levels,operating income differences between absorption costing and variable costing become immaterial.

Accepted Answer

A) True 
 B)False

Question 15

Stiller Corporation incurred fixed manufacturing costs of $24,000 during 2015. Other information for 2015 includes:
The budgeted denominator level is 2,000 units.
Units produced total 1,500 units.
Units sold total 1,200 units.
Beginning inventory was zero.
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.
-The production-volume variance is ________.

Accepted Answer

A)  $8,000 
B)  $6,000 
C)  $9,600 
D)  0

Question 16

Answer the following questions using the information below:
Veach Corporation incurred fixed manufacturing costs of $6,000 during 2015. Other information for 2015 includes:
The budgeted denominator level is 1,000 units.
Units produced total 750 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)  $3,600 
B)  $4,800 
C)  $6,000 
D)  0

Question 17

Using ________ as the denominator level also gives the manager a more accurate idea of the resources needed and used to produce a unit by excluding the cost of unused capacity.

Accepted Answer

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

Question 18

The unit cost of a product is always higher in variable costing than in absorption costing.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Absorption-costing income statements do not need to differentiate between variable and fixed costs.

Accepted Answer

A) True 
 B)False

Exam 9: Inventory Costing and Capacity Analysis

________ is the level of capacity utilization that managers expect for the current budget period,which is typically one year.

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

Match each of the following items with one or more of the denominator-level capacity concepts by putting the appropriate letter(s) by each item:

Given a constant contribution margin per unit and constant fixed costs,the period-to-period change in operating income under variable costing is driven solely by changes in the quantity of units actually manufactured.

Explain how using master-budget capacity utilization for setting prices can lead to a downward demand spiral.

Which of the following costs is inventoried when using absorption costing?

The production-volume variance only exists under variable costing and not under absorption costing.

Evaluating performance of managers over a long period,say over three-to five-years,helps to reduce undesirable buildup of inventories.

As a company reduces its inventory levels,operating income differences between absorption costing and variable costing become immaterial.

Using ________ as the denominator level also gives the manager a more accurate idea of the resources needed and used to produce a unit by excluding the cost of unused capacity.

The unit cost of a product is always higher in variable costing than in absorption costing.

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

Absorption-costing income statements do not need to differentiate between variable and fixed costs.