Ch. 9

Budgeted fixed manufacturing cost rate is the lowest for:

Theoretical capacity

A. Absorption costing allocates fixed manufacturing overhead to actual units produced during the period B. Non-manufacturing 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 exceeds sales units Which is FALSE?

B. Non-manufacturing costs are expensed in the future under variable costing

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 cost 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

C

Using master budget capacity to set selling prices:

can result in a downward demand spiral

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

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

The IRS requires the use of _______________ for calculating fixed manufacturing costs per unit

practical capacity

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