Chapter 9 and Chapter 12

Make or buy decision

A decision concerning whether an item should be produced internally or purchased from an outside supplier.

Constraints

A limitation under which a company must operate, such as limited available machine time or raw materials, that restricts the company's ability to satisfy demand.

Bottleneck

A machine or some other part of a process that limits the total output of the entire system.

Special order

A one-time order that is not considered part of the company's normal ongoing business.

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

B) It treats direct manufacturing costs as a product cost.

________ 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

B) Variable costing

In ________, fixed manufacturing costs are included as inventoriable costs. A) variable costing B) absorption costing C) throughput costing D) activity-based costing

B) absorption costing

Under absorption costing, fixed manufacturing costs ________. A) are period costs B) are inventoriable costs C) are treated as an expense D) are sunk costs

B) are inventoriable costs

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

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

C) It includes fixed manufacturing overhead as an inventoriable cost.

The gross-margin format is used for ________. A) variable costing income statement B) mixed costing income statement C) absorption costing income statement D) standard costing income statement

C) absorption costing income statement

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

C) period cost

Which of the following costs is inventoried when using absorption costing? A) variable selling costs B) fixed administrative costs C) variable manufacturing costs D) fixed selling costs

C) variable manufacturing costs

The unit cost of a product is always higher in variable costing than in absorption costing.

False

Under variable​ costing, lease charges paid on the factory building is an inventoriable cost.

False

Variable costing only includes direct manufacturing costs in inventoriable costs.

False

Why/ how can absorption costing be manipulated

The more inventory built the cost per unit goes down

Which of the following best describes how fixed cost are treated in a variable cost​ method?

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

sunk costs

costs that have already occurred and cannot be changed

throughput margin

equals revenues-direct material cost of goods sold

When there is a constraining resource, the firm should attempt to maximize sales of the product or service with the greatest contribution margin per unit

false

relevant costs

future cost that are differ between alternatives

Throughput Costing

is a method of inventory costing in which only direct materials are included as inventoriable costs. All other costs are expensed.

Variable Costing

is a method of inventory costing in which only variable manufacturing costs (direct and indirect) are included as inventoriable costs.

Master Budget Capacity

is the level of capacity utilization that managers expect for the current budget period, which is typically one year.

theory of constraints

methods to maximize operating income when faced with some bottleneck operations

outsourcing

purchasing good from outside vendors rather than make it yourself

Which of the following costs will be treated as period costs under absorption​ costing?

sales commission paid on sale of product

opportunity cost

contribution to operating income that is foregone by not using a limited resource in its next best alternative use

The opportunity cost of holding significant inventory includes

the interest forgone on an alternative investment

Theoretical Capacity

the level of capacity based on producing at full efficiency all the time.

Pratical Capacity

the level of capacity that reduces theoretical capacity by considering unavoidable operating interruptions like scheduled maintenance time and shutdowns for holidays.

Avoidable variable and fixed costs should be evaluated when deciding whether to discontinue a product

true

When replacing an old machine with a new machine, the trade in value of the old machine is relevant

true

Decision models

•a formal method of making a choice, often involving both quantitative and qualitative analyses.

Absorption Costing

•is a method of inventory costing in which all variable and fixed manufacturing costs are included as inventoriable costs. You can say that inventory "absorbs" all manufacturing costs.

Normal Capacity

•the level of capacity utilization that satisfies average customer demand over a period that is long enough to consider seasonal, cyclical, and trend factors.

________ are subtracted from sales to calculate gross margin. A) Variable and fixed manufacturing costs B) Fixed administrative costs C) Variable administrative costs D) Fixed selling costs

A) Variable and fixed manufacturing costs

The contribution-margin format is used for ________. A) variable costing income statement B) mixed costing income statement C) absorption costing income statement D) job order costing income statement

A) variable costing income statement

The main trouble with variable costing is that it ignores the increasing importance of fixed costs in manufacturing companies. Do you​ agree? Why?

No, variable costing does not view fixed costs as unimportant.​ Rather, variable costing maintains that the distinction between behaviors of different costs is crucial for certain decisions.

Under both variable and absorption​ costing, research and development costs are period costs.

True

Give an example of​ how, under absorption​ costing, operating income could fall even though the unit sales level rises.

Under absorption​ costing, heavy reductions of inventory during the accounting period might combine with low production and a large production volume variance. This combination could result in lower operating income even if the unit sales level rises.

Absorption costing

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

product mix decisions

decisions managers make about which products to sell and in what quanities

For make-or-buy decisions, relevant costs include

incremental costs plus opportunity costs

qualitative factors

outcomes that are difficult to measure accurately in numerical terms

irrelevant costs

past costs that do not differ between alternatives