Question 1

________ is the level of capacity based on producing at full efficiency all the time.

Accepted Answer

A) Practical capacity 
B) Theoretical capacity 
C) Normal capacity 
D) Demand capacity

Question 2

Ms.Sophia Jones,the company president,has heard that there are multiple breakeven points for every product.She does not believe this and has asked you to provide the evidence of such a possibility.Some information about the company for 2017 is as follows:
$\begin{array}{lll}
\text { Total fixed manufacturing overhead } & \$ 185,000 & \
\text { Total other fixed expenses } & \$ 202,000 & \
\text { Total variable manufacturing expenses } & \$ 290,000 & \
\text { Total other variable expenses } & \$ 250,000 & \
\text { Units produced } & 70,000 & \text { units } \
\text { Budgeted production } & 70,000 & \text { units } \
\text { Units sold } & 50,000 & \text { units } \
\text { Selling price } & \$ 42 &
\end{array}$
What are breakeven sales in units using variable costing? (Round any intermediary calculations to the nearest cent and your final answer up to the next whole unit. )

Accepted Answer

A) 12,404 units 
B) 6,383 units 
C) 11,287 units 
D) 10,223 units

Question 3

The marketing manager's performance evaluation is most fair when based on a denominator level using ________ as it is the principal short-run planning and control tool.

Accepted Answer

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

Question 4

Proration approach restates all amounts in the general and subsidiary ledgers by using actual rather than budgeted cost rates.

Accepted Answer

A) True 
 B)False

Question 5

Practical capacity is the level of capacity that reduces theoretical capacity by considering unavoidable operating interruptions,such as scheduled maintenance time and shutdowns for holidays.

Accepted Answer

A) True 
 B)False

Question 6

Venus Corporation incurred fixed manufacturing costs of $4,800 during 2017.Other information for 2017 includes:
The budgeted denominator level is 1,600 units. 
Units produced total 770 units.
Units sold total 630 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.
Operating income using variable costing will be ________ than operating income if using absorption costing.

Accepted Answer

A) $2,490 higher 
B) $2,490 lower 
C) $1,890 higher 
D) $420 lower

Question 7

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

Accepted Answer

A) rent on factory building 
B) electricity consumed in manufacturing process 
C) sales commission paid on each sale 
D) advertising costs incurred for the product

Question 8

Switching production to products that absorb the highest amount of fixed manufacturing costs is also called ________.

Accepted Answer

A) cost reduction 
B) cherry picking 
C) producing for sales 
D) throughput costing

Question 9

Assume a manufacturing company that has started production in the current year.Which of the following would result in the highest profit being reported if the company has 1,000 units of ending inventory?

Accepted Answer

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

Question 10

How does the capacity level chosen to compute the budgeted fixed overhead cost rate affect the production-volume variance?

Accepted Answer

The answer of How does the capacity level chosen to...

Question 11

Which of the following is true of absorption costing?

Accepted Answer

A) It expenses marketing costs as cost of goods sold. 
B) It treats direct manufacturing costs as a period cost. 
C) It includes fixed manufacturing overhead as an inventoriable cost. 
D) It treats indirect manufacturing costs as a period cost.

Question 12

For financial reporting,SFAS 151 requires:

Accepted Answer

A) the allocation of fixed manufacturing overhead to production must be based on theoretical capacity of the facilities 
B) the allocation of fixed manufacturing overhead to production must be based on normal capacity of the facilities 
C) the allocation of fixed manufacturing overhead to production must be based on practical capacity of the facilities 
D) the allocation of fixed manufacturing overhead to production must be based on the average of the capacity of the facilities over the three most recent period

Question 13

The downward demand spiral happens when a company cannot meet competitors prices are not met as because of underutilzied capacity,higher and higher unit costs result is a greater reluctance to meet competitors' prices.

Accepted Answer

A) True 
 B)False

Question 14

There is no output-level variance for variable costing,when ________.

Accepted Answer

A) the inventory level decreases during the period 
B) the inventory level increases during the period 
C) fixed manufacturing overhead is allocated to work in process 
D) fixed manufacturing overhead is not allocated to work in process

Question 15

Advocates of throughput costing argue that ________.

Accepted Answer

A) fixed manufacturing costs must be included as inventoriable costs and provide less incentive than absorption costing to build-up inventory to increase profits 
B) direct manufacturing labor is relatively fixed and therefore should not be included in inventory costs 
C) direct materials costs are a cost of the period and therefore should not be included in inventoriable costs 
D) including only direct materials as inventoriable costs provides less incentive than absorption costing to produce a build-up of inventory merely to increase profits

Question 16

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 17

Galliart Company has two identical divisions,East and West.Their sales,production volume,and fixed manufacturing costs have been the same for the last five years.The amounts for each division were as follows:
  
East Division uses absorption costing and West Division uses variable costing.
Both use FIFO inventory methods.
Variable manufacturing costs are $5 per unit.
Selling and administrative expenses were identical for each division.
There were no inventories at the beginning of 2014.
Which division reports the highest income each year? Explain.

Accepted Answer

The answer of Galliart Company has two identical divisions,East and...

Question 18

Under absorption costing,managers can increase operating income by holding less inventories at the end of the period.

Accepted Answer

A) True 
 B)False

Question 19

Adjusted allocation-rate approach restates all amounts in the general and subsidiary ledgers by using actual rather than budgeted cost rates.

Accepted Answer

A) True 
 B)False

Question 20

When comparing the operating incomes between absorption costing and variable costing,and ending finished inventory exceeds beginning finished inventory,it may be assumed that ________.

Accepted Answer

A) sales decreased during the period 
B) variable cost per unit is more than fixed cost per unit 
C) there is a favorable production-volume variance 
D) absorption costing operating income exceeds variable costing operating income

Exam 9: Inventory Costing and Capacity Analysis

________ is the level of capacity based on producing at full efficiency all the time.

The marketing manager's performance evaluation is most fair when based on a denominator level using ________ as it is the principal short-run planning and control tool.

Proration approach restates all amounts in the general and subsidiary ledgers by using actual rather than budgeted cost rates.

Practical capacity is the level of capacity that reduces theoretical capacity by considering unavoidable operating interruptions,such as scheduled maintenance time and shutdowns for holidays.

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

Switching production to products that absorb the highest amount of fixed manufacturing costs is also called ________.

Assume a manufacturing company that has started production in the current year.Which of the following would result in the highest profit being reported if the company has 1,000 units of ending inventory?

How does the capacity level chosen to compute the budgeted fixed overhead cost rate affect the production-volume variance?

Which of the following is true of absorption costing?

For financial reporting,SFAS 151 requires:

The downward demand spiral happens when a company cannot meet competitors prices are not met as because of underutilzied capacity,higher and higher unit costs result is a greater reluctance to meet competitors' prices.

There is no output-level variance for variable costing,when ________.

Advocates of throughput costing argue that ________.

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.

Under absorption costing,managers can increase operating income by holding less inventories at the end of the period.

Adjusted allocation-rate approach restates all amounts in the general and subsidiary ledgers by using actual rather than budgeted cost rates.

When comparing the operating incomes between absorption costing and variable costing,and ending finished inventory exceeds beginning finished inventory,it may be assumed that ________.