MAnag ch 8

The following information is available for Brooks Manufacturing: Finished goods Inventory was 10,000 units at the beginning of the year and 12,000 units at the end of the year. The total variable costs per unit were $18. The predetermined fixed manufacturing overhead rate was $6. Variable selling and administrative costs per unit were $3. Total fixed selling and administrative costs per unit were $2. Calculate the difference between absorption costing net income and variable costing net income

$12,000 higher under absorption

Under variable-costing, ______ cost.

-fixed manufacturing overhead is a period -variable manufacturing overhead is a product

Given a sufficiently long time period, net income under variable-costing and absorption-costing will be approximately the same if ______.

-there is no change in inventory -production and sales are almost equal

Because fixed overhead is applied to goods as a product cost on a per unit basis, _______costing is inconsistent with CVP Analysis

Absorption

Generally accepted accounting principles require that ______ costing be used for income reporting

Absorption

The only period expenses on an income statement prepared using ____________costing are the selling and administrative expenses

Absorption

Both variable and fixed manufacturing overhead are treated as product costs under ______ costing.

Absorption costing

Most companies that use cost-based pricing base their prices on

Absorption costing data

An argument in favor of variable costing for pricing decisions is ______.

Any positive contribution margin by a product favorably impacts net income

Some managers find the inconsistency between________ costing and CVP analysis troubling enough to warrant using ______ costing for internal income reporting.

Blank 1: absorption or full Blank 2: variable or direct

Absorption costing assigns direct materials, direct labor and ______ to products

Both fixed and variable manufacturing overhead

Although the income statement formats differ between variable and absorption costing, net income will always be the same.

False

The extent of a products capabilities in relation to other products with the same functional use is the product's

Grade

On an absorption costing income statement, fixed manufacturing overhead cost is ______.

Included in the total manufacturing cost per unit using a predetermined fixed overhead rate

Product costs are also called ______ costs.

Inventoriable

When inventories decrease during the period, income under absorption costing will be ______ under variable costing

Less than

When inventories decrease during the period, income under absorption costing will be ______ under variable costing.

Less than

When inventories increase during the period, income under variable costing will be ______ under absorption costing.

Less than

Under absorption costing fixed overhead costs are expensed when ______.

The product is sold

The shorter the time period over which income is measured under absorption and variable costing, the more likely the net incomes under the two methods will differ.

True

The position that only costs that will not be repeated in the future should be included in inventory cost is an argument for the use of

Variable

Absorption costing is inconsistent with CVP analysis because fixed overhead is ______.

applied to goods as a product cost on a per-unit basis

On the variable-costing income statement, fixed manufacturing overhead is ______.

deducted as a lump-sum period cost

When inventories increase, net income under absorption costing will be greater than under variable costing because some of the ______ remain in inventory.

fixed manufacturing overhead costs

When inventories decrease, net income under variable costing will be ______ under absorption costing.

greater than

Under variable costing fixed overhead costs are expensed when ______.

incurred

When using variable costing, ______ manufacturing overhead is (are) treated as a product cost

only variable

When there is no change in inventory during the year (i.e. product produced is equal to product sold), net income under absorption costing will be ______ net income under variable costing.

the same as

Period expenses on an income statement prepared using costing include fixed manufacturing overhead.

variable or direct

The following information is available for Brooks Manufacturing: Finished goods Inventory was 10,000 units at the beginning of the year and 8,000 units at the end of the year. The total variable costs per unit were $18. The fixed manufacturing overhead rate was based on total fixed manufacturing overhead costs of $300,000 and a planned production of 50,000 units. Variable selling and administrative costs per unit were $3. Total fixed selling and administrative costs were $100,000 or $2 per unit. Calculate the difference between absorption costing net income and variable costing net income

12,000 less under absorption

Under just-in-time (JIT) manufacturing, the differences between absorption and variable costing income will generally be insignificant because ______.

inished goods inventories are kept very low there is little change in finished goods inventories between periods

Since the costs of production are stored in the finished goods account until sold, these costs are called

inventoriable Costs