CH9 Cost Accounting

Absorption costing: A) expenses marketing costs as cost of goods sold B) treats direct manufacturing costs as a period cost C) includes fixed manufacturing overhead as an inventoriable cost D) is required for internal reports to managers

Answer: C

The difference between operating incomes under variable costing and absorption costing centers on how to account for: A) direct materials costs B) fixed manufacturing costs C) variable manufacturing costs D) Both B and C are correct.

Answer: B

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

Answer: B

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

Answer: A

Which of the following inventory costing methods shown below is required by GAAP (Generally Accepted Accounting Principles) for external financial reporting? A) absorption costing B) variable costing C) throughput costing D) direct costing

Answer: A

Absorption costing is required for all of the following EXCEPT: A) generally accepted accounting principles B) determining a competitive selling price C) external reporting to shareholders D) income tax reporting

Answer: B

An unfavorable production-volume variance occurs when: A) production exceeds the denominator level B) the denominator level exceeds production C) production exceeds unit sales D) unit sales exceed production

Answer: 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

Answer: B

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

Answer: B

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

Answer: B

The contribution-margin format of the income statement: A) is used with absorption costing B) highlights the lump sum of fixed manufacturing costs C) distinguishes manufacturing costs from nonmanufacturing costs D) calculates gross margin

Answer: B

Variable costing: A) expenses administrative costs as cost of goods sold B) treats direct manufacturing costs as a product cost C) includes fixed manufacturing overhead as an inventoriable cost D) is required for external reporting to shareholders

Answer: B

Which of the following statements is FALSE? A) Absorption costing allocates fixed manufacturing overhead to actual units produced during the period. B) Nonmanufacturing costs are expensed in the future under variable costing. C) Fixed manufacturing 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.

Answer: B

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

Answer: B

________ method(s) include(s) fixed manufacturing overhead costs as inventoriable costs. A) Variable costing B) Absorption costing C) Throughput costing D) All of these answers are correct.

Answer: B

At the end of the accounting period Bumsted Corporation reports operating income of $30,000 and the fixed overhead cost rate is $20 per unit. Under variable costing, if this company produces 100 more units of inventory, then operating income: A) will increase by $2,000 B) will increase by $2,000 only if the 100 additional units of inventory are sold C) will not be affected D) is indeterminable

Answer: C

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 of these answers are correct.

Answer: C

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

Answer: C

The only difference between variable and absorption costing is the expensing of: A) direct manufacturing costs B) variable marketing costs C) fixed manufacturing costs D) Both A and C are correct.

Answer: C

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 information

Answer: C

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) deferring maintenance to accelerate production D) All of these answers are correct.

Answer: C

________ is a method of inventory costing in which all variable and fixed manufacturing costs are included as inventoriable costs. A) Variable costing B) Mixed costing C) Absorption costing D) Standard costing

Answer: C

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

Answer: D

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

Answer: D

The contribution-margin format of the income statement: A) is used with absorption costing B) calculates gross margin C) distinguishes between manufacturing and nonmanufacturing costs D) is used with variable costing

Answer: D

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 three- to five-year period rather than a single year C) incorporate a carrying charge for inventory in the internal accounting system D) All of these answers are correct.

Answer: D

When comparing the operating incomes between absorption costing and variable costing, and beginning finished inventory exceeds ending finished inventory, it may be assumed that: A) sales increased during the period B) variable cost per unit is less than fixed cost per unit C) there is an unfavorable production-volume variance D) variable costing operating income exceeds absorption costing operating income

Answer: D

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

Answer: D

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

Answer: D

________ are subtracted from sales to calculate contribution margin. A) Variable manufacturing costs B) Variable marketing costs C) Fixed manufacturing costs D) Both A and B are correct.

Answer: D

________ are subtracted from sales to calculate gross margin. A) Variable manufacturing costs B) Variable marketing costs C) Fixed manufacturing costs D) Both A and C are correct.

Answer: D

________ method(s) expense(s) direct material costs as cost of goods sold. A) Variable costing B) Absorption costing C) Throughput costing D) All of these answers are correct.

Answer: D

________ method(s) expense(s) variable marketing costs in the period incurred. A) Variable costing B) Absorption costing C) Throughput costing D) All of these answers are correct.

Answer: D

________ method(s) is required for tax reporting purposes. A) Variable costing B) Absorption costing C) Throughput costing D) All of these answers are correct.

Answer: B

At the end of the accounting period Susan Corporation reports operating income of $30,000 and the fixed overhead cost rate is $20 per unit. Under absorption costing, if this company now produces an additional 100 units of inventory, then operating income: A) will increase by $2,000 B) will increase by $2,000 only if the additional 100 units of inventory are sold C) will not be affected D) is indeterminable

Answer: A

Given a constant contribution margin per unit and constant fixed costs, 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) changes in the quantity of units produced C) changes in ending inventory D) changes in sales price per unit

Answer: A

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 and excludes the effects of manipulating production schedules D) decreasing maintenance activities and increasing production result in increased operating income

Answer: C

Variable costing regards fixed manufacturing overhead as a(n): A) administrative cost B) inventoriable cost C) period cost D) product cost

Answer: C

The gross-margin format of the income statement: A) distinguishes between manufacturing and nonmanufacturing costs B) distinguishes variable costs from fixed costs C) is used with variable costing D) calculates contribution margin

Answer: A

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 the manager's bonus C) not affecting the manager's bonus D) being unable to determine the manager's bonus using only the above information

Answer: A

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

Answer: A