Chapter 9

Which of the following cost is inventoried when using variable costing? A. direct manufacturing costs B. variable marketing costs C. fixed manufacturing costs D. Both A & B are correct

A. direct manufacturing costs

_____ provides the lowest estimate of denominator-level capacity A. Practical capacity B. Theoretical capacity C. Master-budget capacity utilization D. Normal capacity utilization

C. Master-budget capacity utilization

The gross-margin format of the income statement: A. distinguishes between manuf & nonmanuf costs B. distinguishes variable costs from FC C. is used with variable costing D. calculates CM

A. distinguishes between manuf & nonmanuf costs

Master-budget capacity utilization: A. hides the amount of unused capacity B. represents the max units of production intended for current capacity C. provides the best cost estimate for benchmarking purposes D. when used for product costing results in the lowest cost estimate of the 4 capacity options

A. hides the amount of unused capacity

Practical capacity may: A. increase over time due to improvements in plant layout B. decrease over time due to efficiencies offered by new technologies C. cannot be altered unless there is a major plant expansion D. both A & B are correct

A. increase over time due to improvements in plant layout

Under absorption costing, if a manager's bonus is tied to operating income, then increasing inventory levels compared to last year would result in: A. increasing the manager's bonus B. decreasing in the manager's bonus C. not affecting the manager's bonus D. being unable to determine the manager's bonus using only the above info

A. increasing the manager's bonus

Variable & absorption costing may be combined with all costing systems EXCEPT: A. mixed costing B. actual costing C. normal costing D. standard costing

A. mixed costing

The IRS requires the use of _______ for calculating fixed manuf cost per unit A. practical capacity B. theoretical capacity C. master-budget capacity utilization D. normal capacity utilization

A. practical capacity

Practical capacity is the denominator-level concept that: A. reduces theoretical capacity for unavoidable operating interruptions B. is the max level of operations at max efficiency C. is based on the level of capacity utilization that satisfies average customer demand over periods generally longer than 1 year D. is based on anticipated levels of capacity utilization for the coming budget period

A. reduces theoretical capacity for unavoidable operating interruptions

Budgeted fixed manuf costs of a product using practical capacity: A. represents the cost per unit of supplying capacity B. can result in setting selling prices that are not competitive C. includes the cost of unused capacity D. should be used to evaluate a mktg manager's performance in the current year

A. represents the cost per unit of supplying capacity

If 1,000 units are produced & only 700 units are sold, _______ result in the greatest amount of expense reported on the income statement A. throughput costing B. variable costing C. absorption costing D. period costing

A. throughput costing

If 800 units are produced & 1,200 units are sold, ______ results in the greatest amount of operating income A. throughput costing B. variable costing C. absorption costing D. period costing

A. throughput costing

In general, if inventory increases during an accounting period, A. variable costing will report less operating income than absorption costing B. absorption costing will report less operating income than variable costing C. variable costing & absorption costing will report the same operating income D. NONE

A. variable costing will report less operating income than absorption costing

Which of the following inventory costing methods shown below is most likely to cause undesirable incentives for managers to build up finished goods inventory? A.absorption costing B. variable costing C. throughput costing D. direct costing

A.absorption costing

Which of the following inventory costing methods shown below is required by GAAP for external financial reporting? A.absorption costing B. variable costing C. throughput costing D. direct costing

A.absorption costing

The gross-margin format of the income statement: A. is used with variable costing B. is used with absorption costing C. calculates CM D. distinguishes variable costs from FC

B. is used with absorption costing

The higher the denominator level, the: A. higher the budgeted fixed manuf cost rate B. lower the amount of fixed manuf costs allocated to each unit produced C. higher the favorable production-volume variance D. more likely actual output will exceed the denominator level

B. lower the amount of fixed manuf costs allocated to each unit produced

If the unit level of inventory increases during an accounting period, then: A. less operating income will be reported under absorption costing than variable costing B. more operating income will be reported under absorption costing than variable costing C. operating income will be the same under absorption costing & variable costing D. the exact effect on operating income cannot be determined

B. more operating income will be reported under absorption costing than variable costing

A favorable production-volume variance occurs when: A. the denominator level exceeds production B. production exceeds the denominator level C. production exceeds unit sales D. unit sales exceed production

B. production exceeds the denominator level

1 possible means of determining the difference between operating incomes for absorption costing & variable costing is by: A. subtracting sales of the previous period from sales of this period B. subtracting fixed manuf OVH in the beginning inventory from fixed manuf OVH in ending inventory C. multiplying the number of units produced by the budgeted cost rate D. adding fixed mauf costs to the production volume-variance

B. subtracting fixed manuf OVH in the beginning inventory from fixed manuf OVH in ending inventory

Throughput costing is also called: A. absorption costing B. super-variable costing C. mixed costing D. direct costing

B. super-variable costing

The breakeven point using absorption depends on all of the following EXCEPT: A. the number of units sold during the current period B. the budgeted level of production C. the denominator level chosen for the fixed manuf OVH rate D. fulfillment of current production quotas

B. the budgeted level of production

Customers expect to pay a price that includes: A. the cost of unused capacity B. the cost of actual capacity used C. no capacity costs D. Both A & B are correct

B. the cost of actual capacity used

The budgeted fixed manuf cost rate is the lowest for: A. practical capacity B. theoretical capacity C. master-budget capacity utilization D. normal capacity utilization

B. theoretical capacity

Variable costing: A. expenses marketing costs as COGS B. treats direct manuf costs as a period cost C. includes fixed manuf OVH as an inventoriable cost D. is required for external reports to managers

B. treats direct manuf costs as a period cost

Using master-budget capacity to set selling prices: A. avoids the recalculation of unit costs when expected demand levels change B. spreads FC over available capacity C. can result in a downward demand spiral D. uses the perspective of long-run product pricing

C. can result in a downward demand spiral

Critics of absorption costing suggest to evaluate management on their ability to: A. exceed production quotas B. increase operating income C. decrease inventory costs D. ALL

C. decrease inventory costs

Ways to "produce for inventory" that result in increasing operating income include: A. Switching production to products that absorb the least amount of fixed manuf costs B. delaying items that absorb the greatest amount of fixed manuf costs C. deferring maintenance to accelerate production

C. deferring maintenance to accelerate production

The only difference between variable & absorption costing is the expensing of: A. direct manuf costs B. variable mktg costs C. fixed manuf costs D. both A C are correct

C. fixed manuf costs

Advocates of throughput costing argue that: A. only direct materials are truly variable B. direct manuf labor is relatively fixed C. variable manuf costs are a cost of the period D. ALL

D. ALL

Managers face uncertainty when estimating: A. demand of the product B. the denominator level for practical capacity C. total fixed manuf costs for the next acct period D. ALL

D. ALL

Theoretical capacity: A. is unattainable in the real world B. represents an ideal goal of capacity usage C. is based on engineering studies that provide info about the technical capabilities of machines used in production D. ALL

D. ALL

To discourage producing for inventory, management can: A. evaluate nonfinancial measures such as units in ending inventory compared to units in sales B. evaluate performance over a 3 to 5 year period rather than a single year C. incorporate a carrying charge for inventory in the internal accounting system D. ALL

D. ALL

_________ methods expense direct material costs as COGS: A. variable costing B. absorption costing C. throughput costing D. ALL

D. ALL

____________ methods expense variable mrktg costs in the period incurred: A. Variable costing B. Absorption costing C. Throughput costing D. ALL

D. ALL

Companies have recently been able to reduce inventory levels because: A. there is better sharing of information between suppliers & manufacturers B. just-in-time production strategies are being implemented C. production quotas are being implemented D. Both A & B are correct

D. Both A & B are correct

Differences between absorption costing & variable costing are much smaller when a: A. large part of the manuf process is subcontracted out B. just-in-time inventory strategy is implemented C. significant portion of manuf costs are fixed D. Both A & B are correct

D. Both A & B are correct

_____ are subtracted from sales to calculate CM A. Variable manuf costs B. Variable selling & administrative costs C. fixed manuf costs D. Both A & B are correct

D. Both A & B are correct

________ are subtracted from sales to calculate gross margin A. Variable manuf costs B. Variable selling & administrative costs C. fixed manuf costs D. Both A & B are correct

D. Both A & B are correct

Which of the following cost are inventoried when using absorption costing? A. direct manufacturing costs B. variable marketing costs C. fixed manufacturing costs D. Both A & C are correct

D. Both A & C are correct

Unused capacity: A. is a definite sign of wasted resources B. is intended for future use C. provides capacity for potential demand surges D. Both B & C are correct

D. Both B & C are correct

_______ are based on the demand for the output of the plant A. Practical capacity B. Master-budget capacity utilization C. Normal capacity utilization D. Both B & C are correct

D. Both B & C are correct

Theoretical capacity allows for: A. preventive machine maintenance B. interruptions due to uncontrollable power failures C. network of the expected number of defective units D. NONE

D. NONE

_______ is based on the level of capacity utilization that satisfies average customer demand over periods generally longer than 1 year A. Practical capacity B. Theoretical capacity C. Master-budget capacity utilization D. Normal capacity utilization

D. Normal capacity utilization

When comparing the operating incomes between absorption costing & variable costing, & ending finished inventory exceeds beginning finished inventory, it may be assumed that: A. sales decreased during the period B. VC per unit is more than FC per unit C. there is a favorable production-volume variance D. absorption costing operating income exceeds variable costing operating income

D. absorption costing operating income exceeds variable costing operating income

Which method is NOT a way to discourage producing for inventory? A. incorporate a carrying charge for inventory B. focus on careful budgeting & inventory planning C. include nonfinancial measures when evaluating performance D. evaluate performance on a quarterly basis only

D. evaluate performance on a quarterly basis only

There is NOT an output-level variance for variable costing, because: A. the inventory level decrease during the period B. the inventory level increased during the period C. fixed manuf OVH is allocated to work in process D. fixed manuf OVH is not allocated to WIP

D. fixed manuf OVH is not allocated to WIP

The CM format of the income statement: A. is used w absorption costing B. calculates gross margin C. distinguishes between manuf & nonmanuf costs D. is used with VC

D. is used with VC

It is most difficult to estimate ________ because of the need to predict demand for the next few years A. practical capacity B. theoretical capacity C. master-budget capacity utilization D. normal capacity utilization

D. normal capacity utilization

_________ is the continuing reduction in the demand for a company's products that occurs when competitor prices are NOT met A. Downward demand spiral B. Theoretical capacity C. Normal capacity D. Pratical capacity

A. Downward demand spiral

________ is the level of capacity utilization that satisfies average customer demand over a period that includes seasonal, cyclical, & trend factors A. Normal capacity utilization B. Theoretical capacity C. Master-budget capacity utilization D. Practical capacity

A. Normal capacity utilization

_______ reduces theoretical capacity for unavoidable operating interruptions A. Practical capacity B. Theoretical capacity C. Master-budget capacity utilization D. Normal capacity utilization

A. Practical capacity

_______ is a method of inventory costing in which all variable manuf costs (direct & indirect) are included as inventoriable costs & all fixed manuf costs are excluded A. Variable costing B. Mixed costing C. Absorption costing D. Standard costing

A. Variable costing

Capacity costs: A. are difficult to estimate B. don't provide a useful planning tool for non-manuf firms C. cannot be used with activity-based costing D. ALL

A. are difficult to estimate

Given a constant CM per unit & constant FC, the period-to-period change in operating income under variable costing is driven solely by: A. changes in the quantity of units actually sold B. _____________________________________ units produced C.________________ ending inventory D. _______________ sales price per unit

A. changes in the quantity of units actually sold

When large differences exist between practical capacity & master-budget capacity utilization companies may: A. classify the difference as planned unused capacity B. use master-budget capacity utilization for setting SP C. use practical capacity for meaningful feedback to the mktg manager D. ALL

A. classify the difference as planned unused capacity

__________ method is required for tax reporting purposes A. Variable costing B. Absorption costing C. Throughput costing D, ALL

B. Absorption costing

____________ methods include fixed manuf OVH costs as inventoriable costs: A. Variable costing B. Absorption costing C. Throughput costing D. ALL

B. Absorption costing

The formula for computing the BE point in units under variable costing includes all of the following EXCEPT: A. total FC B. CM % C. target operating income D. CM per unit

B. CM %

Which of the following statement is FALSE? A. Absorption costing allocates fixed manuf OVH to actual produced during the period B. Nonmanuf costs are expensed in the future under variable costing C. Fixed manuf costs in ending inventory are expensed in the future under absorption costing D. Operating income under absorption costing is higher than operating income under variable costing when production units exceed sales units

B. Nonmanuf costs are expensed in the future under variable costing

________ is the level of capacity based on producing at full efficiency all the time A. Practical capacity B. Theoretical capacity C. Normal capacity D. Demand capacity

B. Theoretical capacity

__________ is a method of inventory costing in which only variable manuf costs are included as inventoriable costs A. Fixed costing B. Variable costing C. Absorption costing D. Mixed costing

B. Variable costing

At the end of the ACCT period Bumsted Corporation reports operating income of $30,000. If Bumsted's inventory levels decrease during the ACCT period: A. variable costing will report less operating income than absorption costing B. absorption costing will report less operating income than variable costing C. variable costing & absorption costing will report the same operating income D. NONE

B. absorption costing will report less operating income than variable costing

The use of theoretical capacity results in an unrealistically low fixed manuf cost per unit because it is based on: A. real available capacity B. an unattainable level of capacity C. normal capacity utilization D. normal costing

B. an unattainable level of capacity

Normal capacity utilization: A. represents real capacity available to the company B. can result in setting selling prices that are not competitive C. when used for product costing results in the lowest cost estimate of the 4 capacity options D. represents the max units of production intended for current capacity

B. can result in setting selling prices that are not competitive

Switching production to products that absorb the highest amount of fixed manuf costs is also: A. cost reduction B. cherry picking C. production for sales D. throughput costing

B. cherry picking

Absorption costing is required for all of the following except: A. GAAP B. determining a competitive selling price C. external reporting to shareholders D. income tax reporting

B. determining a competitive selling price

The difference between operating income under variable costing & absorption costing centers on how to account for: A. direct material costs B. fixed manuf costs C. variable manuf costs D. Both B & C are correct

B. fixed manuf costs

The CM format of the income statement: A. is used with absorption costing B. highlights the lump sum of fixed manuf costs C. distinguishes manuf costs from nonmanuf costs D. calculates gross margin

B. highlights the lump sum of fixed manuf costs

The effect of spreading fixed manuf costs over a shrinking master-budget capacity utilization amount results in: A. greater utilization of capacity B. increased unit costs C. more competitive SP D. greater demand for the product

B. increased unit costs

Advocates of throughput costing maintain that: A. both variable & fixed are necessary to produce goods; therefore, both types of costs should be inventoried B. all manuf costs + some design costs should be inventoried C. fixed manuf costs are related to the capacity to produce rather than to the actual production of specific units D. Both A & C are correct

C. fixed manuf costs are related to the capacity to produce rather than to the actual production of specific units

Absorption costing; A. expenses marketing costs as COGS B. treats direct manuf costs as a period cost C. includes fixed manuf OVH as an inventoriable cost D. is required for internal reports to managers

C. includes fixed manuf OVH as an inventoriable cost

The mktg manager's performance evaluation is most fair when based on a denominator level using: A. pratical capacity B. theoretical capacity C. master-budget capacity utilization D. normal capacity utilization

C. master-budget capacity utilization

Under variable costing, if a manager's bonus is tied to operating income, then increasing inventory levels compared to last year would result in: A. increasing the manager's bonus B. decreasing the manager's bonus C. not affecting the manager's bonus D. being unable to determine the manager's bonus using only the above info

C. not affecting the manager's bonus

All of the following are examples of drawbacks of using absorption costing EXCEPT: A. management has the ability to manipulate operating income via production schedules B. manipulation of operating income may ultimately increase the company's costs incurred over the long run C. operating income solely reflects income from the sale of units & excludes the effects of manipulating production schedules D. decreasing maintenance activities & increasing production result in increased operating income

C. operating income solely reflects income from the sale of units & excludes the effects of manipulating production schedules

Variable costing regards fixed manuf OVH as a: A. administrative cost B. inventoriable cost C. period cost D. product cost

C. period cost

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

C. practical capacity for pricing decisions

Throughput contribution equals: A. VC - FC B. revenues - all DL costs C. revenues - all DM COGS D. revenues - manuf OVH

C. revenues - all DM COGS

Operating income reported on the end-of-period financial statements is changed when _______ is used to handle the production-volume variance at the end of the acct period A. the adjusted allocation-rate approach B. the proration approach C. the write-off variances to COGS approach D. ALL

C. the write-off variances to COGS approach

Which of the following inventory costing methods results in the LEAST amount of costs being inventoried? A. absorption costing B. variable costing C. throughput costing D. direct costing

C. throughput costing

Which of the following inventory costing methods shown below is LEAST likely to cause undesirable incentives for managers to build up finished goods inventory? A. absorption costing B. variable costing C. throughput costing D. direct costing

C. throughput costing

Many companies have switched from absorption costing to variable costing for internal reporting: A. to comply with external reporting requirements B. to increase bonuses for managers C. to reduce the undesirable incentive to build up inventories D. so the denominator level is more accurate

C. to reduce the undesirable incentive to build up inventories

Theoretical capacity: A. represents real capacity available to the company B. provides the best perspective of actual long-run costs C. when used for product costing result in the lowest cost estimate of the 4 capacity options D. replicates the cost of capacity in a competitor's cost structure

C. when used for product costing result in the lowest cost estimate of the 4 capacity options