Chapter 9
C
Throughput contribution equals ________. A) variable costs minus fixed costs B) revenues minus all direct labor costs C) revenues minus all direct material cost of goods sold D) revenues minus manufacturing overhead
C
To discourage producing for inventory, management can ________. A) discourage using nonfinancial measures such as units in ending inventory compared to units in sales B) evaluate performance over a quarterly period rather than a single year C) incorporate a carrying charge for inventory in the internal accounting system D) implement absorption costing across all departments
D
Advocates of throughput costing argue that ________. A) fixed manufacturing costs are also to be included as inventoriable costs B) direct manufacturing labor is relatively fixed C) direct materials costs are a cost of the period D) only direct material costs are included as inventoriable costs
C
Many companies have switched from absorption costing to variable costing for internal reporting ________. A) to comply with external reporting requirements as required by GAAP B) to increase bonuses for managers C) to reduce the undesirable incentive to build up inventories D) so the denominator level is more accurate
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
A
Practical capacity is the denominator-level concept that ________. A) reduces theoretical capacity for unavoidable operating interruptions B) is the maximum level of operations at maximum efficiency C) is based on the level of capacity utilization that satisfies average customer demand over periods generally longer than one year D) is based on anticipated levels of capacity utilization for the coming budget period
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
A
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
B
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) selling and administrative costs
C
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
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) variable administrative costs Answer: C
D
Which of the following is true of absorption costing? A) It enables a manager to decrease margins and operating income by producing more beginning inventory. B) It enables a manager to increase margins and operating income by producing more beginning inventory. C) It enables a manager to decrease margins and operating income by producing more ending inventory. D) It enables a manager to increase margins and operating income by producing more ending inventory.
C
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.
B
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
C
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
B
Which of the following statements is true of contribution-margin format of the income statement? A) It is used for absorption costing. B) It highlights the lump sum of fixed manufacturing costs. C) It distinguishes manufacturing costs from nonmanufacturing costs. D) It calculates gross margin.
A
Which of the following statements is true of gross-margin format of the income statement? A) It distinguishes between manufacturing and nonmanufacturing costs. B) It distinguishes variable costs from fixed costs. C) It is used for variable costing. D) It calculates the contribution margin from sales.
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.
B
________ is the level of capacity based on producing at full efficiency all the time. A) Practical capacity B) Theoretical capacity C) Normal capacity D) Demand capacity
B
________ is the level of capacity utilization that managers expect for the current budget period, which is typically one year. A) Practical capacity B) Master-budget capacity utilization C) Theoretical capacity D) Normal capacity utilization
A
________ provides the lowest estimate of denominator-level capacity in case demand of the product is not a limiting factor. A) Practical capacity B) Theoretical capacity C) Master-budget capacity utilization D) Normal capacity utilization
A
________ reduces theoretical capacity for unavoidable operating interruptions. A) Practical capacity B) Theoretical capacity C) Master-budget capacity utilization D) Normal capacity utilization
A
) In general, if inventory increases during an accounting period, ________. A) variable costing will report less operating income than absorption costing B) absorption costing will report less operating income than variable costing C) variable costing and absorption costing will report the same operating income D) both variable costing and absorption costing will show losses
B
An favorable production-volume variance occurs when ________. A) the denominator level exceeds production B) production exceeds the denominator level C) production exceeds unit sales D) unit sales exceed production
C
Assume a manufacturing company that has started production in the current year. Which of the following would result in the highest profit being reported if the company has 1,000 units of ending inventory? A) throughput costing B) variable costing C) absorption costing D) standard costing
C
Critics of absorption costing suggest evaluating management on its ability to ________. A) exceed production quotas B) increase operating income C) decrease fixed costs D) decrease variable costs
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
A
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) period costing
A
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
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
B
In ________, fixed manufacturing costs are included as inventoriable costs. A) variable costing B) absorption costing C) throughput costing D) activity-based costing
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
B
Throughput costing is also called ________. A) absorption costing B) super-variable costing C) mixed costing D) direct costing
B
Under absorption costing, fixed manufacturing costs ________. A) are period costs B) are inventoriable costs C) are treated as an expense D) are sunk costs
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
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
C
Variable costing regards fixed manufacturing overhead as a(n) ________. A) administrative cost B) inventoriable cost C) period cost D) product cost
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) undervaluing ending inventory by not recording certain costs that have been incurred
D
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
A
Which of the following best describes practical capacity? A) It is the level of capacity that reduces theoretical capacity by considering unavoidable operating interruptions, such as scheduled maintenance time and shutdowns for holidays. B) It is the level of capacity based on producing at full efficiency all the time. C) It is the level of capacity utilization that satisfies average customer demand over a period that includes seasonal, cyclical, and trend factors. D) It is the level of capacity utilization that managers expect for the current budget period, which is typically one year.
C
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
B
Which of the following costs is inventoried when using variable costing? A) rent on factory building B) electricity consumed in manufacturing process C) sales commission paid on each sale D) advertising costs incurred for the product
B
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
A
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
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
B
Which of the following is a reason for companies adopting variable costing for internal reporting purposes? A) It is cost-effective to use variable costing for both internal and external reporting. B) It reduces the incentives for undesirable buildup of inventories. C) It measures the cost of all manufacturing resources, whether variable or fixed, necessary to produce inventory. D) It assists in accurate pricing decisions in case of long-run pricing.
A
Which of the following statements is true of absorption costing? A) Absorption costing allocates fixed manufacturing overhead to actual units produced during the period. B) Absorption costing carries over nonmanufacturing costs to the future periods. C) Absorption costing shows the same level of profit as variable costing irrespective of the level of inventories. D) Absorption costing allocates total manufacturing cost using the budgeted level of production for a particular year.
D
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
________ are subtracted from sales to calculate gross margin. A) Variable manufacturing costs B) Fixed administrative costs C) Variable administrative costs D) Fixed selling costs
A
________ is a method of inventory costing in which all variable manufacturing costs (direct and indirect) are included as inventoriable costs and all fixed manufacturing costs are excluded. A) Variable costing B) Mixed costing C) Absorption costing D) Standard costing
C
________ is a method of inventory costing in which all variable manufacturing costs and all fixed manufacturing costs are included as inventoriable costs. A) Variable costing B) Mixed costing C) Absorption costing D) Standard costing
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
D
________ is based on the level of capacity utilization that satisfies average customer demand over periods generally longer than one year. A) Practical capacity B) Theoretical capacity C) Master-budget capacity utilization D) Normal capacity utilization
A
________ is subtracted from sales while calculating contribution margin. A) Direct labor in factory B) Rent on factory building C) Rent on the headquarterʹs building D) Sales commission on incremental sales
