Ch. 8 & 9 Cost Concepts

Variances Spending Efficiency Volume Variable MOH $7,900 F $34,000 U (B) Fixed MOH $28,300 U (A) $80,000 U The above table is a ________.

4 - Variance Analysis

Absorption costing is required to be used for federal income tax reports. both external financial reports and income tax reports. neither external financial reports nor income tax reports. external financial reports, but not income taxes.

???

How is the fixed overhead volume variance calculated? The difference between the standard fixed overhead costs allocated to production and the budgeted fixed overhead costs The difference between the actual fixed overhead costs incurred and the budgeted fixed overhead costs The difference between the actual fixed overhead costs incurred and the standard fixed overhead costs allocated The difference between the standard fixed overhead rate and the actual fixed overhead rate multiplied by the actual hours used

???

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

Absorption costing

________ method includes fixed manufacturing overhead costs as inventoriable costs. Activity-based costing Throughput costing Absorption costing Variable costing

Absorption costing

What factor related to manufacturing costs causes the difference between operating income computed using absorption costing and operating income computed using variable costing? Absorption costing expenses all costs, whether fixed or variable. Absorption costing "inventories" all fixed manufacturing and period costs. Absorption costing "inventories" all fixed manufacturing costs. Absorption costing "inventories" all direct manufacturing costs.

Absorption costing "inventories" all fixed manufacturing costs.

What factor related to manufacturing costs causes the difference between operating income computed using absorption costing and operating income computed using variable costing? Absorption costing expenses all costs, whether fixed or variable. Absorption costing "inventories" all fixed manufacturing costs. Absorption costing "inventories" all direct manufacturing costs. Absorption costing "inventories" all fixed manufacturing and period costs.

Absorption costing "inventories" all fixed manufacturing costs.

Which of the following is the correct mathematical expression to calculate the fixed overhead spending variance? Flexible-budget amount — Fixed overhead allocated for actual output Static-budget amount — Flexible-budget amount Static-budget amount — Fixed overhead allocated for actual output Actual costs incurred — Flexible-budget amount

Actual costs incurred — Flexible-budget amount

Which of the following costs will be treated as period costs under absorption costing? A) raw materials used in the production B) sales commission paid on sale of product C) depreciation on factory equipment D) rent for factory building

B) sales commission paid on sale of product

Cost of goods sold is shown at which of the following on a standard cost income statement? Standard cost Actual cost Neither A nor B Both A and B

Both A and B

Which of the following mathematical expression is used to calculate budgeted variable overhead cost rate per output unit? Budgeted output allowed per input unit × Budgeted variable overhead cost rate per input unit Budgeted input allowed per output unit × Budgeted variable overhead cost rate per input unit Budgeted input allowed per output unit ÷ Budgeted variable overhead cost rate per input unit Budgeted output allowed per input unit ÷ Budgeted variable overhead cost rate per input unit

Budgeted input allowed per output unit × Budgeted variable overhead cost rate per input unit

The amount reported for fixed overhead on the static budget is also reported ________. A) as actual fixed costs B) as allocated fixed overhead costs C) as flexible budget costs D) as committed variable costs

C) as flexible budget costs

All fixed costs are listed ________ on a contribution margin income statement. above the contribution margin line above the gross profit line below the gross profit line below the contribution margin line

below the contribution margin line

Absorption costing is required to be used for external financial reports, but not income taxes. neither external financial reports nor income tax reports. both external financial reports and income tax reports. federal income tax reports.

both external financial reports and income tax reports.

Which of the following is a reason for companies to use absorption costing for internal accounting? It does not take into account fixed manufacturing overhead while valuing inventory and hence is more suited for decision making. It measures the cost of all resources, whether manufacturing or nonmanufacturing, necessary to produce inventory. It is the required inventory method for internal accounting as per GAAP. It can help prevent managers from taking actions that make their performance measure look good but that hurt the income they report to shareholders

It can help prevent managers from taking actions that make their performance measure look good but that hurt the income they report to shareholders

Which of the following is true of absorption costing? It treats indirect manufacturing costs as a period cost. It treats direct manufacturing costs as a period cost. It expenses marketing costs as cost of goods sold. It includes fixed manufacturing overhead as an inventoriable cost.

It includes fixed manufacturing overhead as an inventoriable cost.

Which of the following is a reason for companies adopting variable costing for internal reporting purposes? It measures the cost of all manufacturing resources, whether variable or fixed, necessary to produce inventory. It reduces the incentives for undesirable buildup of inventories. It assists in accurate pricing decisions in case of long-run pricing. It is cost-effective to use variable costing for both internal and external reporting.

It reduces the incentives for undesirable buildup of inventories.

Which of the following is true of variable costing? It includes fixed manufacturing overhead as an inventoriable cost. It treats direct manufacturing costs as a product cost. It expenses administrative costs as cost of goods sold. It is required for external reporting to shareholders

It treats direct manufacturing costs as a product cost.

Fixed overhead costs include ________. Leasing of machinery used in a factory indirect materials energy costs the cost of sales commissions

Leasing of machinery used in a factory

________ is based on the level of capacity utilization that satisfies average customer demand over periods generally longer than one year. Normal capacity utilization Master-budget capacity utilization Practical capacity Theoretical capacity

Normal capacity utilization

Which type of variance causes operating income to be lower than the budgeted operating income? Neutral variance Unfavorable variance Reverse variance Favorable variance

Unfavorable variance

Which type of variance causes operating income to be lower than the budgeted operating income? Neutral variance Reverse variance Favorable variance Unfavorable variance

Unfavorable variance

Which type of costing system can only be used for internal financial reporting because it is unacceptable by GAAP? Absorption costing Variable costing Prime costing Out-of-pocket costing

Variable costing

Which type of costing system can only be used for internal financial reporting because it is unacceptable by GAAP? Out-of-pocket costing Absorption costing Variable costing Prime costing

Variable costing

Which of the following statements is true of variable overhead costs? Variable overhead costs always have unused capacity. Variable overhead costs have no efficiency variance. Variable overhead costs have no spending variance. Variable overhead costs have no production-volume variance.

Variable overhead costs have no production-volume variance.

The variable overhead rate variance is also known as which of the following? Variable overhead price variance Variable overhead efficiency variance Variable overhead usage variance Variable overhead spending variance

Variable overhead spending variance

Regarding a standard cost income statement, which of the following is true? Operating income is shown at standard cost. Cost of goods sold is shown only at standard cost. Sales revenue is shown only at standard revenue. Variances are listed separately.

Variances are listed separately.

Management by exception would dictate that the manager investigate which of the following variances? All favorable and unfavorable variances All unfavorable variances Variances which are greater than a budget and actual dollar amount or percentage Variances which are less than budget and actual dollar amount or percentage

Variances which are greater than a budget and actual dollar amount or percentage

Management by exception would dictate that the manager investigate which of the following variances? All unfavorable variances All favorable and unfavorable variances Variances which are greater than a budget and actual dollar amount or percentage Variances which are less than budget and actual dollar amount or percentage

Variances which are greater than a budget and actual dollar amount or percentage

Which of the following is a component of sales-volume variance? Operating-income volume variance Net-income volume variance Taxable-income volume variance Budgeted revenue variance

Operating-income volume variance

Which term below is best paired with "The difference between the actual overhead cost incurred and the flexible budget amount of overhead cost for actual number of output"? Benchmarking Overhead flexible budget variance Flexible budget Sales volume variance

Overhead flexible budget variance

In planning and control of capacity costs, managers must consider possible capacity measures. Which of the following measures the available supply of capacity in a factory? Normal capacity Master-budget capacity Practical capacity Theoretical capacity

Practical capacity

In planning and control of capacity costs, managers must consider possible capacity measures. Which of the following measures the available supply of capacity in a factory? Master-budget capacity Practical capacity Theoretical capacity Normal capacity

Practical capacity

________ reduces theoretical capacity for unavoidable operating interruptions. Normal capacity utilization Theoretical capacity Master-budget capacity utilization Practical capacity

Practical capacity

Which of the following examples may lead directly to a favorable fixed overhead volume variance? A decrease in county property taxes for the factory Receiving a volume discount on indirect materials purchased Producing more units than anticipated A decrease in wages paid to factory maintenance workers

Producing more units than anticipated

Using master-budget capacity to allocate budgeted fixed manufacturing costs can result in a in fixed overhead costs calculated based on capacity available can result in a downward demand spiral stable measure; avoiding the recalculation of unit costs when expected demand levels change fixed costs spread over available capacity

can result in a downward demand spiral

Using master-budget capacity to allocate budgeted fixed manufacturing costs can result in a stable measure; avoiding the recalculation of unit costs when expected demand levels change can result in a downward demand spiral in fixed overhead costs calculated based on capacity available fixed costs spread over available capacity

can result in a downward demand spiral

The major challenge when planning fixed overhead is ________. choosing the appropriate planning period choosing the appropriate level of capacity calculating total costs calculating the cost-allocation rate

choosing the appropriate level of capacity

How would you describe the Standard Hours Allowed? Standard Hours Allowed is the actual number of hours worked given the actual number of units produced. Standard Hours Allowed is the predicted number of hours worked in the planning budget. Standard Hours Allowed is the number of hours it should have taken given the standard hours and the actual number of units produced. Standard Hours Allowed is the difference between the actual number of hours worked and the hours planned for in the static budget.

Standard Hours Allowed is the number of hours it should have taken given the standard hours and the actual number of units produced.

Which of the following statements is true of fixed overhead cost variances? The difference between actual costs and static budget costs will give the production volume variance. The difference between flexible budget costs and allocated overhead costs will give the production volume variance. The difference between static budget costs and flexible budget costs will give the production volume variance. The difference between actual costs and flexible budget costs will give the production volume variance.

The difference between flexible budget costs and allocated overhead costs will give the production volume variance

Which of the following statements is true of fixed overhead cost variances? The difference between actual costs and static budget costs will give the production volume variance. The difference between flexible budget costs and allocated overhead costs will give the production volume variance. The difference between static budget costs and flexible budget costs will give the production volume variance. The difference between actual costs and flexible budget costs will give the production volume variance.

The difference between flexible budget costs and allocated overhead costs will give the production volume variance.

How is the fixed overhead budget variance calculated? The difference between the actual fixed overhead costs incurred and the budgeted fixed overhead costs The difference between the standard fixed overhead rate and the actual fixed overhead rate multiplied by the actual hours used The difference between the standard fixed overhead costs allocated and the budgeted fixed overhead costs The difference between the actual fixed overhead costs incurred and the standard fixed overhead costs allocated

The difference between the actual fixed overhead costs incurred and the budgeted fixed overhead costs

Compared to variable overhead costs planning, fixed overhead cost planning has an additional strategic issue beyond undertaking only essential activities and efficient operations. That additional requirement is best described as: identifying essential value-adding activities choosing the appropriate level of capacity that will benefit the company in the long-run increasing the linearity between total costs and volume of production focusing on the highest possible quality

choosing the appropriate level of capacity that will benefit the company in the long-run

On a contribution margin income statement, sales revenue less variable expenses equals contribution margin. gross profit. operating income. operating expenses.

contribution margin.

At lean companies, employees tend to be multi-skilled and cross-trained to perform a number of duties. These workers are held in high-esteem by management and are considered to be part of a team effort, rather than a labor force to be controlled. Consequently, this decreases the importance of direct labor standards. increases the importance of direct labor standards. Both of the above. None of the above.

decreases the importance of direct labor standards.

The production-volume variance may also be referred to as the ________. denominator-level variance flexible-budget variance spending variance efficiency variance

denominator-level variance

How is the variable overhead rate variance calculated? The difference between the actual overhead rate and the standard overhead rate multiplied by the standard hours allowed The difference between the actual overhead rate and the standard overhead rate multiplied by the actual hours The difference between the standard hours allowed and the actual hours used multiplied by the standard overhead rate The difference between the standard hours allowed and the actual hours used multiplied by the actual overhead rate

The difference between the actual overhead rate and the standard overhead rate multiplied by the actual hours

How is the variable manufacturing overhead efficiency variance calculated? The difference between the standard hours allowed and the actual hours used multiplied by the standard overhead rate The difference between the actual overhead rate and the standard overhead rate multiplied by the standard overhead rate The difference between the standard hours allowed and the actual hours used multiplied by the actual overhead rate The difference between the standard hours allowed and the actual hours used

The difference between the standard hours allowed and the actual hours used multiplied by the standard overhead rate

How is the variable overhead efficiency variance calculated? The difference between the standard hours allowed and the actual hours used multiplied by the actual overhead rate The difference between the actual overhead rate and the standard overhead rate multiplied by the actual hours The difference between the actual overhead rate and the standard overhead rate multiplied by the standard hours allowed The difference between the standard hours allowed and the actual hours used multiplied by the standard overhead rate

The difference between the standard hours allowed and the actual hours used multiplied by the standard overhead rate

Which of the following is not true of the 3 level variance analysis of operating income? A) Level 1 shows the static budget variance for operating income B) Level 2 shows the direct material price and efficiency variances C) Level 2 shows the sales-volume variance for operating income D) Level 3 shows the fixed overhead production volume variance as a component of the sales-volume variance for operating income

D) Level 3 shows the fixed overhead production volume variance as a component of the sales-volume variance for operating income

The entry to allocate manufacturing overhead costs to production involves which of the following? Debit to work in process inventory for the standard rate of overhead times the standard quantity of the allocation base allowed for actual output Credit to work in process inventory for the actual cost of overhead Debit to work in process inventory for the actual cost of overhead Credit to work in process inventory for the standard rate of overhead times the standard quantity of the allocation base allowed for actual output

Debit to work in process inventory for the standard rate of overhead times the standard quantity of the allocation base allowed for actual output

Which of the following would be subtracted from sales while calculating contribution margin in a variable costing format of an operating income statement? Direct labor in factory Sales commission on incremental sales Rent on factory building Rent on the headquarters building

Direct labor in factory

Which of the following would be subtracted from sales while calculating contribution margin in a variable costing format of an operating income statement? Rent on the headquarters building Sales commission on incremental sales Rent on factory building Direct labor in factory

Direct labor in factory

Which of the following would be subtracted from sales while calculating contribution margin in a variable costing format of an operating income statement? Rent on the headquarters building Direct labor in factory Sales commission on incremental sales Rent on factory building

Direct labor in factory

________ is the continuing reduction in the demand for a company's products that occurs when competitor prices are not met. Continuous step down demand Downward demand spiral Competitor pricing pressure Super-demand cutback

Downward demand spiral

Which of the following is a true statement of energy costs? Energy costs are a growing component of variable overhead costs. Energy costs are a fixed cost of doing business for a manufacturer. Strategies to reduce energy costs will not impact variable cost budgets. Energy costs are not controllable

Energy costs are a growing component of variable overhead costs.

When deciding whether or not to adopt standard costs and perform variance analysis, management should do which of the following? Increase automation of assembly lines Update inaccurate standard costs Examine the costs and benefits of a standard costing system Adopt lean thinking

Examine the costs and benefits of a standard costing system

Which type of variance causes operating income to be greater than the budgeted operating income? Favorable variance Reverse variance Unfavorable variance Neutral variance

Favorable variance

In flexible budgets the costs that are not "flexed" because they remain the same within a relevant range of activity (such as sales or output) are called ________.

Fixed costs

Which of the following statements may be true if actual units produced exceed the budgeted units to be produced? Overhead flexible budget variance is expected to be unfavorable. Fixed overhead volume variance is expected to be favorable. Overhead flexible budget variance is expected to be favorable. Production volume variance is expected to be unfavorable.

Fixed overhead volume variance is expected to be favorable.

Which term below is best paired with "a summarized budget that can easily be computed for several volume levels"? Flexible budget Sales volume variance Overhead flexible budget variance Benchmarking

Flexible budget

Which of the following does not appear on an income statement prepared using variable costing? Gross margin Contribution margin Variable production costs Fixed production costs

Gross margin

How is the variable overhead efficiency variance calculated? The difference between the actual overhead rate and the standard overhead rate multiplied by the actual hours The difference between the standard hours allowed and the actual hours used multiplied by the standard overhead rate The difference between the standard hours allowed and the actual hours used multiplied by the actual overhead rate The difference between the actual overhead rate and the standard overhead rate multiplied by the standard hours allowed

The difference between the standard hours allowed and the actual hours used multiplied by the standard overhead rate

Top management at Gifford manufacturing are planning capacity levels and how to assign capacity costs for an upcoming period. Which of the following factors should be considered while developing this plan so that proper control can be achieved? The GAAP rules requiring absorption costing The IRS tax implications of such decisions The requirements of SFAS 151 The level of uncertainty of expected costs and demand

The level of uncertainty of expected costs and demand

What may cause a sales volume variance for fixed expenses? The number of units actually sold falls within a different relevant range than the static budget sales volume. The lease on the manufacturing facility is renegotiated and the lease payments increase during the year. The union calls for a strike of factory workers and temporary workers are hired to fill in for the striking employees. Insurance costs on the factory rise unexpectedly during the year due to a crisis in the insurance industry

The number of units actually sold falls within a different relevant range than the static budget sales volume.

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

Theoretical capacity

Which of the following best describes how fixed cost are treated in a variable cost method? They are classified as nonmanufacturing costs They are excluded from inventory cost and are treated as period costs They are part of the product cost They are allocated to the product cost using a denominator-level capacity choice

They are excluded from inventory cost and are treated as period costs

What will happen to the contribution margin if fixed costs related to a product increase while variable costs and sales price remain constant? Will not change Will decrease Will increase None of the above

Will not change

Which of the following is true about what the Internal Revenue Service requires for calculating indirect manufacturing costs per unit? requires that theoretical capacity be used as a means of allocating indirect manufacturing costs a method of which fairly apportions indirect production costs among the various items produced requires the use of master-budget capacity utilization requires the use of normal capacity utilization

a method of which fairly apportions indirect production costs among the various items produced

Which of the following is true about what the Internal Revenue Service requires for calculating indirect manufacturing costs per unit? requires that theoretical capacity be used as a means of allocating indirect manufacturing costs requires the use of normal capacity utilization a method of which fairly apportions indirect production costs among the various items produced requires the use of master-budget capacity utilization

a method of which fairly apportions indirect production costs among the various items produced

All variable costs are listed ________ on a contribution margin income statement. below the gross profit line above the contribution margin line below the contribution margin line above the gross profit line

above the contribution margin line

All variable costs are listed ________ on a contribution margin income statement. below the gross profit line above the contribution margin line below the contribution margin line above the gross profit line

above the contribution margin line

On a traditional income statement, all manufacturing-related costs, whether fixed or variable, are listed above the gross profit line. above the contribution margin line. above the sales line. below the operating income line.

above the gross profit line.

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? absorption costing standard costing variable costing throughput costing

absorption costing

In ________, fixed manufacturing costs are included as inventoriable costs. variable costing absorption costing throughput costing activity-based costing

absorption costing

The gross-margin format is used for ________. mixed costing income statement absorption costing income statement standard costing income statement variable costing income statement

absorption costing income statement

The gross-margin format is used for ________. variable costing income statement standard costing income statement absorption costing income statement mixed costing income statement

absorption costing income statement

The contribution margin income statement presents ________ below the contribution margin line. all fixed expenses only variable expenses relating to selling and administrative activities only fixed expenses relating to selling and administrative activities all variable expenses

all fixed expenses

Under absorption costing, fixed manufacturing costs ________. are period costs are inventoriable costs are sunk costs are treated as an expense

are inventoriable costs

Most of the decisions determining the level of fixed overhead costs to be incurred will be made ________. by the end of a budget period by the middle of a budget period on a day-to-day ongoing basis at the start of a budget period

at the start of a budget period

To discourage producing for inventory, management can ________. develop budgeting and planning activities that reduce management's freedom to inappropriately build inventory through increased production discourage using nonfinancial measures such as units in ending inventory compared to units in sales as nonfinancial measures may not be congruent with management performance goals implement absorption costing across all departments evaluate performance over a quarterly period rather than a single year

develop budgeting and planning activities that reduce management's freedom to inappropriately build inventory through increased production

For fixed manufacturing overhead, there is no ________. spending variance production-volume variance efficiency variance flexible-budget variance

efficiency variance

Product-sustaining costs in activity-based costing are similar to ________. semi-variable costs mixed costs fixed costs variable costs

fixed costs

Advocates of throughput costing maintain that ________. fixed manufacturing costs are related to the capacity to produce rather than to the actual production of specific units except direct labor no other costs are truly variable in output both variable and fixed are necessary to produce goods; therefore, both types of costs should be inventoried all manufacturing costs plus some design costs should be inventoried

fixed manufacturing costs are related to the capacity to produce rather than to the actual production of specific units

There is no output-level variance for variable costing, when ________. fixed manufacturing overhead is allocated to work in process fixed manufacturing overhead is not allocated to work in process the inventory level increases during the period the inventory level decreases during the period

fixed manufacturing overhead is not allocated to work in process

The variable overhead rate variance may be caused by variances in the following production inputs except indirect labor. indirect materials. fixed manufacturing overhead. None of the above impacts the variable overhead rate variance.

fixed manufacturing overhead.

Under standard costing, ________. fixed overhead costs are treated as if they are a fixed cost variable overhead costs are treated as if they are a fixed cost fixed overhead costs are treated as if they are a sunk cost fixed overhead costs are treated as if they are a variable cost

fixed overhead costs are treated as if they are a variable cost

Under standard costing, ________. fixed overhead costs are treated as if they are a variable cost fixed overhead costs are treated as if they are a fixed cost fixed overhead costs are treated as if they are a sunk cost variable overhead costs are treated as if they are a fixed cost

fixed overhead costs are treated as if they are a variable cost

The fixed overhead cost variance can be further subdivided into the ________. flexible-budget variance and the production-volume variance production-volume variance and the efficiency variance spending variance and flexible-budget variance price variance and the efficiency variance

flexible-budget variance and the production-volume variance

Effective planning of variable overhead costs means that managers must

focus on activities that add value for the customer and eliminate​ nonvalue-added activities

A favorable variance causes operating income to be _______________ the budgeted operating income? equal to lower than half as much as greater than

greater than

A favorable variance causes operating income to be _______________ the budgeted operating income? lower than half as much as equal to greater than

greater than

On a traditional income statement, sales revenue less cost of goods sold equals contribution margin. operating expenses. operating income. gross profit.

gross profit.

Fixed overhead costs ________. have no spending variance have no efficiency variance never have any unused capacity have no production-volume variance

have no efficiency variance

A cost benchmark is valid only if the standards are kept up to date. reviewed by salaried assembly-line workers. practical and attainable. based on historical costs.

kept up to date.

An unfavorable variance causes operating income to be _______________ the budgeted operating income? half as much as greater than lower than equal to

lower than

An unfavorable production-volume variance ________. indicates that the company had reduced its per unit fixed overhead cost to improve sales measures the amount of extra fixed costs planned for but not used takes into account the effect of additional revenues due to maintaining higher prices is not a good measure of a lost production opportunity

measures the amount of extra fixed costs planned for but not used

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

normal capacity utilization

Customers expect to pay a price that includes ________. only the cost of actual capacity used the cost of direct materials, direct labor, and fixed overhead variable costs but not capacity costs the cost of unused capacity

only the cost of actual capacity used

For external reporting purposes, U.S. GAAP allows companies to use the variable costing format. only the contribution margin format of the income statement. either the traditional format or the contribution margin format. only the traditional format of the income statement.

only the traditional format of the income statement.

Variable costing regards fixed manufacturing overhead as a(n) ________. inventoriable cost product cost administrative cost period cost

period cost

the ________ department may be responsible to incur a "direct labor rate variance." personnel marketing finance purchasing

personnel

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. theoretical capacity normal capacity utilization practical capacity master-budget capacity utilization

practical capacity

Which of the following capacity levels should a company choose, from a long-run product costing perspective, to allocate budgeted fixed manufacturing costs to products? normal capacity utilization for benchmarking purposes practical capacity for pricing decisions theoretical capacity for performance evaluation master-budget capacity utilization to highlight unused capacity

practical capacity for pricing decisions

The type of standard that provides allowances for normal amounts of waste and inefficiency in the production process is referred to as a(n) realistic standard. ideal standard. practical standard. perfection standard.

practical standard.

The income statement is organized by ________ under absorption costing. period costs only fixed costs only variable costs only product and period costs

product and period costs

By increasing ________, a manager can increase operating income under absorption costing. fixed costs variable costs leased assets production

production

The ________ department may be responsible to incur a "direct labor efficiency variance." personnel marketing production purchasing

production

Net income reported under absorption costing will exceed net income reported under variable costing for a given period if sales exceed production for that period. production exceeds sales for that period. variable overhead exceeds fixed overhead for that period. production equals sales for that period.

production exceeds sales for that period.

The ________ department is most likely responsible to incur a "direct material price variance." marketing personnel purchasing production

purchasing

Throughput contribution equals ________. revenues minus all direct labor costs variable costs minus fixed costs revenues minus all direct material cost of goods sold revenues minus manufacturing overhead

revenues minus all direct material cost of goods sold

The contribution margin is equal to sales minus cost of goods sold. sales minus operating expenses. sales minus variable expenses. sales minus fixed expenses.

sales minus variable expenses.

A(n) ________ "arises because the number of units actually sold differs from the static budget units." overhead flexible budget variance benchmarking sales volume variance flexible budget

sales volume variance

A(n) ________ is a carefully predetermined cost that is usually expressed on a per unit basis. flexible cost applied cost allocated cost standard cost

standard cost

Ways to "produce for inventory" that result in increasing operating income include ________. undervaluing ending inventory by not recording certain costs that have been incurred delaying items that absorb the greatest amount of fixed manufacturing costs switching production to products that absorb the least amounts of fixed manufacturing costs switching production to products that absorb the most amounts of fixed manufacturing costs

switching production to products that absorb the most amounts of fixed manufacturing costs

Raw Materials Inventory 120,000 Accounts Payable 118,000 DM Price Variance 2,000 The credit to DM Price Variance in the journal entry above indicates that the variance is favorable since it is a credit balance. that the variance is unfavorable since it is a credit balance. that the actual quantity used was exactly what they budgeted to use. that actual price exceeds the standard price for direct materials.

that the variance is favorable since it is a credit balance.

A $5,000 unfavorable flexible-budget variance indicates that ________. the flexible-budget amount exceeded standard variable manufacturing overhead by $5,000 the standard variable manufacturing overhead exceeded the flexible-budget amount by $5,000 the actual variable manufacturing overhead exceeded the flexible-budget amount by $5,000 the flexible-budget amount exceeded actual variable manufacturing overhead by $5,000

the actual variable manufacturing overhead exceeded the flexible-budget amount by $5,000

The variable overhead spending variance measures the difference between ________, multiplied by the actual quantity of variable overhead cost-allocation base used. the actual quantity per unit and the budgeted quantity per unit the standard variable overhead cost rate and the budgeted variable overhead cost rate the actual variable overhead cost per unit and the budgeted variable overhead cost per unit the actual variable overhead cost per unit and the budgeted fixed overhead cost per unit

the actual variable overhead cost per unit and the budgeted variable overhead cost per unit

For financial reporting, SFAS 151 requires: the allocation of fixed manufacturing overhead to production must be based on practical capacity of the facilities the allocation of fixed manufacturing overhead to production must be based on normal capacity of the facilities the allocation of fixed manufacturing overhead to production must be based on theoretical capacity of the facilities 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

the allocation of fixed manufacturing overhead to production must be based on normal capacity of the facilities

An unfavorable fixed overhead spending variance indicates that ________. the price of fixed overhead items cost more than budgeted there was more excess capacity than planned the fixed overhead cost-allocation base was not used efficiently the denominator level was more than planned

the price of fixed overhead items cost more than budgeted

Which of the following approaches spreads underallocated or overallocated overhead among ending balances in Work-in-Process Control, Finished Goods Control, and Cost of Goods Sold? the adjusted allocation-rate approach the write-off variances to cost of goods sold approach the reinstatement approach the proration approach

the proration approach

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 accounting period. the adjusted allocation-rate approach the proration approach the write-off variances to cost of goods sold approach the reinstatement approach

the write-off variances to cost of goods sold approach

The budgeted fixed manufacturing cost rate is the lowest for ________. theoretical capacity normal capacity utilization master-budget capacity utilization practical capacity

theoretical capacity

Disadvantages of using standard costs and variances include all of the following except companies that pay employees a salary because direct labor is a fixed cost rather than a variable cost. those manufacturing costs that enter Work in Process Inventory are recorded at standard cost, rather than actual cost. traditional standards can promote unfavorable employee behavior. the excessive cost to keep standards up-to-date.

those manufacturing costs that enter Work in Process Inventory are recorded at standard cost, rather than actual cost.

If 800 units are produced and 1,200 units are sold, the costing method which will result in the greatest operating income is ________. throughput costing period costing variable costing absorption costing

throughput costing

Many companies have switched from absorption costing to variable costing for internal reporting ________. to comply with external reporting requirements as required by GAAP so the denominator level is more accurate to increase bonuses for managers to reduce the undesirable incentive to build up inventories that would show higher operating income

to reduce the undesirable incentive to build up inventories that would show higher operating income

When machine-hours are used as an overhead cost-allocation base and annual leasing costs for equipment unexpectedly increase, the most likely result would be to report a(n) ________. unfavorable variable overhead spending variance favorable variable overhead efficiency variance unfavorable fixed overhead flexible-budget variance favorable production-volume variance

unfavorable fixed overhead flexible-budget variance

While calculating the costs of products and services, a standard costing system ________. allocates overhead costs on the basis of the actual overhead-cost rates does not keep track of overhead cost uses standard costs to determine the cost of products traces direct costs to output by multiplying the standard prices or rates by the actual quantities

uses standard costs to determine the cost of products

The contribution-margin format is used for ________. job order costing income statement variable costing income statement mixed costing income statement absorption costing income statement

variable costing income statement

Which of the following costs is inventoried when using absorption costing? variable manufacturing costs variable selling costs fixed selling costs fixed administrative costs

variable manufacturing costs

One possible reason for unfavorable variable overhead efficiency variance for materials handling is ________. inefficient layout of product distribution channels very low wait time at work centers very tight standards for materials-handling time loosely budgeted standard hours

very tight standards for materials-handling time

Which of the following is true of normal capacity utilization? It can result in setting selling prices that are not competitive. It will almost always show results that are very close to that of practical capacity utilization It is also called master-budget capacity utilization It results in the lowest cost estimate of the four capacity options when used for product costing.

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

Which of the following statements is true of gross-margin format of the income statement? It distinguishes variable costs from fixed costs. It distinguishes between manufacturing and nonmanufacturing costs. It is used for variable costing. It calculates the contribution margin from sales.

It distinguishes between manufacturing and nonmanufacturing costs.

Which of the following statements is true of contribution-margin format of the income statement? It distinguishes manufacturing costs from nonmanufacturing costs. It calculates gross margin. It distinguishes between variable and fixed costs in its format. It is used for absorption costing.

It distinguishes between variable and fixed costs in its format.

Which of the following best defines standard costing? It is a system that traces direct cost to output by multiplying actual process or rates by actual quantities of inputs + allocates overhead by on the basis of actual quantities of the allocation base used. It is a system that traces direct costs to output produced by multiplying the standard prices or rates by the standard quantities of inputs allowed for the actual output produced. It is the same as actual costing but done in real time. It is a system that allocates overhead costs on the basis of standard overhead cost rates times the actual quantities of the allocation based used.

It is a system that traces direct cost to output by multiplying actual process or rates by actual quantities of inputs + allocates overhead by on the basis of actual quantities of the allocation base used

When the number of units produced is less than the number of units sold, how does operating income under variable costing differ from operating income under absorption costing? It is higher than operating income under absorption costing. It depends upon the amount of decline. It is the same as operating income under absorption costing. It is lower than operating income under absorption costing.

It is higher than operating income under absorption costing.

Which of the following is not one of the reasons why absorption costing might also be used for internal reporting? For long-term decision making both variable and fixed costs must be considered for inventory related decisions It is more useful for managerial decision making than variable costing It can help prevent managers from making decisions that make their performance look good to the detriment of income reported to shareholders It is cost effective and less confusing for managers to use one common method for both internal and external reporting

It is more useful for managerial decision making than variable costing

Advocates of throughput costing argue that ________. direct materials costs are a cost of the period and therefore should not be included in inventoriable costs including only direct materials as inventoriable costs provides less incentive than absorption costing to produce a build-up of inventory merely to increase profits fixed manufacturing costs must be included as inventoriable costs and provide less incentive than absorption costing to build-up inventory to increase profits direct manufacturing labor is relatively fixed and therefore should not be included in inventory costs

including only direct materials as inventoriable costs provides less incentive than absorption costing to produce a build-up of inventory merely to increase profits

When absorption costing is used and management bonuses are related to operating income, managers are more likely to decrease inventory levels. increase inventory levels. steal from the company. keep inventory levels consistent.

increase inventory levels.

The effect of spreading fixed manufacturing costs over a shrinking master-budget capacity utilization amount results in ________. greater utilization of capacity more competitive selling prices increased unit costs greater demand for the product

increased unit costs