Exam 2: Chap 6-9

Absorption Inventory Cost equation

Absorption inventory cost=DM+ DL+ Variable Manufacturing+ Fixed Manufacturing Cost

________ 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

If 1,000 units are produced and only 700 units are sold, ________ results 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

Fixed manufacturing overhead is a period cost both under variable costing and under absorption costing True False

False

In absorption costing, fixed manufacturing overhead is treated as a period cost True False

False

In variable costing, all nonmanufacturing costs are subtracted from the contribution margin True False

False

The contribution-margin format of the income statement distinguishes manufacturing costs from nonmanufacturing costs True False

False

The contribution-margin format of the income statement is used with absorption costing True False

False

The income under variable costing will always be the same as the income under absorption costing True False

False

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

False

Under variable costing, lease charges paid on the factory building is an inventoriable cost. True False

False

The basis of the difference between variable costing and absorption costing is how fixed manufacturing costs are accounted for True False

True

The main difference between variable costing and absorption costing is the way in which fixed manufacturing costs are accounted for True False

True

The two most common methods of costing inventories in manufacturing companies are variable costing and absorption costing True False

True

Under both variable and absorption costing, research and development costs are period costs True False

True

Which of the following measures capacity levels in terms of demand for the output of the plant? A) practical capacity and theoretical capacity B) theoretical capacity and normal capacity utilization C) normal capacity utilization and master-budget capacity utilization D) master-budget capacity utilization and practical capacity

C) normal capacity utilization and master-budget capacity utilization

Which of the following is not an advantage for using standard costs for variance analysis? a. Standards simplify product costing. b. Standards are developed using past costs and are available at a relatively low cost. c. Standards are usually expressed on a per-unit basis. d. Standards can take into account expected changes planned to occur in the budgeted period.

b. Standards are developed using past costs and are available at a relatively low cost.

Flexible budgets a. accommodate changes in the inflation rate. b. accommodate changes in activity levels. c. are used to evaluate capacity utilization. d. are static budgets that have been revised for changes in price(s).

b. accommodate changes in activity levels.

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

cherry picking

Benchmarking is a. relatively easy to do with the amount of available financial information about companies. b. best done with the best in their field regardless of type of company. c. simply reporting the magnitude of differences in costs or revenues across companies. d. making comparisons to direct attention to why differences in costs exist across companies.

d. making comparisons to direct attention to why differences in costs exist across companies.

Ways to "produce for inventory" that result in increasing operating income include ________.

deferring maintenance to accelerate production

The difference between operating incomes under variable costing and absorption costing centers on how to account for ________.

fixed manufacturing costs

Under absorption costing, if a manager's bonus is tied to operating income, then increasing inventory levels compared to last year would result in ________.

increasing the manager's bonus

If the unit level of inventory increases during an accounting period, then ________.

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

Under variable costing, if a manager's bonus is tied to operating income, then increasing inventory levels compared to last year would result in ________.

not affecting the manager's bonus

One possible means of determining the difference between operating incomes for absorption costing and variable costing is by ________

subtracting fixed manufacturing overhead in beginning inventory from fixed manufacturing overhead in ending inventory

One possible means of determining the difference between operating incomes for absorption costing and variable costing is by ________.

subtracting fixed manufacturing overhead in beginning inventory from fixed manufacturing overhead in ending inventory

Job costing system is an example of absorption costing True False

true

Variable Inventory Cost equation

variable inventory cost=DM+ DL+ Variable Manufacturing

Which of the following best describes practical capacity? A) It is the level of capacity that reduces theoretical capacity by considering unavoidable operating interruptions, such as scheduled maintenance time and shutdowns for holidays. B) It is the level of capacity based on producing at full efficiency all the time. C) It is the level of capacity utilization that satisfies average customer demand over a period that includes seasonal, cyclical, and trend factors. D) It is the level of capacity utilization that managers expect for the current budget period, which is typically one year.

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

The basic principles and concepts of variance analysis can be applied to activity-based costing a. by application as to the levels of cost hierarchy. b. through careful classification of costs as direct and indirect as applied to the product or job. c. with use of standard costing systems only. d. only through those activities related to individual units of product or service.

a. by application as to the levels of cost hierarchy

Performance evaluation using variance analysis should guard against a. emphasis on a single performance measure. b. emphasis on total company objectives. c. basing effect of a manager's action on the total costs of the company as a whole. d. highlighting individual aspects of performance.

a. emphasis on a single performance measure.

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

absorption costing operating income exceeds variable costing operating income