cost chapter 9

A

5) Which of the following is true of master-budget capacity utilization? A) It hides the amount of unused capacity. B) It represents the maximum units of production intended for current capacity. C) It provides the best cost estimate for benchmarking purposes. D) It is an average that provides no meaningful feedback to a firm's marketing manager for a particular year.

A

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

C

6) 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? 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

absorption

can obscure which costs will actually be relevant across alternative plans

B

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

period cost

costs that cannot be capitalized. charged or expensed in period occured

inventoriable cost

all costs of a product that are considered as assets in the balance sheet when incurred and COGS when the product is sold

theoretical capacity

level of capacity based on using full efficiency at all times

absorption

method in which variable and fixed costs are considered inventoriable

variable costing

method of inventory costing in which only variable costs are inventoriable

variable

this kind of costing does not allow manipulation of inventory

absorption

this kind of costing is effected by changes in unit sales and unit production. net income can increase even if more units are made and not sold

internally

variable and throughouput costing are used externally or internally

D

1) 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

C

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

B

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

b

17) One possible means of determining the difference between operating incomes for absorption costing and variable costing is by ________. A) subtracting sales of the previous period from sales of this period B) subtracting fixed manufacturing overhead in beginning inventory from fixed manufacturing overhead in ending inventory C) multiplying the number of units produced by the budgeted fixed manufacturing cost rate D) adding fixed manufacturing costs to the production-volume variance

D

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

C

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

B

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

A

5) 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) job costing

C

6) 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

D

6) Which of the following steps can a management take to reduce the undesirable effects of absorption costing? A) It can evaluate managers on quarterly basis rather than the usual yearly period thereby mitigating the undesirable effects of absorption costing. B) It can delegate powers to managers to decide which orders they want to accept so that any order which will lead to inventory build-up can be rejected. C) It can empower managers to decide the timings of maintenance of plants thereby ensuring that the production is not affected. D) It can encourage using nonfinancial measures such as units in ending inventory compared to units in sales.

A

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

b

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 and variable costing D) the exact effect on operating income cannot be determined

C

To discourage producing for inventory, management can ________. A) 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 B) evaluate performance over a quarterly period rather than a single year C) develop budgeting and planning activities that reduce management's freedom to inappropriately build inventory through increased production D) implement absorption costing across all departments

D

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

product cost

cost that are incurred to create a product intended for sale

throughput costing

extreme forma of variable costing in which only DM costs are included as inventory able

practical capacity

level of capacity that reduces theoretical capacity by unavoidable operating interruptions such as schedueled matinee or shutdowns

variable

this kind of costing should be used when fixed costs won't change across different plans

absorption

this method of inventory costing is used for external reporting

FMOH

what is considered a period cost in variable costing but not absorption

high fixed costs

what makes the choice of variable vs absorption important for manufacturing companies

variable

an advantage of this costing is that it is only affected by changes in unit sales. making more units and not selling them will not make NI increase