Exam 2 Review - CH 9

19) 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.

B) Nonmanufacturing costs are expensed in the future under variable costing.

1) 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

A) reduces theoretical capacity for unavoidable operating interruptions

3) Budgeted fixed manufacturing costs of a product using practical capacity: A) represents the cost per unit of supplying capacity B) can result in setting selling prices that are not competitive C) includes the cost of unused capacity D) should be used to evaluate a marketing manager's performance in the current year

A) represents the cost per unit of supplying capacity

5) 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) throughput costing

6) If 800 units are produced and 1,200 units are sold, ________ results in the greatest amount of operating income. A) throughput costing B) variable costing C) absorption costing D) period costing

A) throughput costing

35) At the end of the accounting period Bumsted Corporation reports operating income of $30,000. If Bumstead's inventory levels decrease during the 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) None of the above are correct.

B) absorption costing will report less operating income than variable costing.

4) Normal capacity utilization: A) represents real capacity available to the company B) can result in setting selling prices that are not competitive C) when used for product costing results in the lowest cost estimate of the four capacity options D) represents the maximum units of production intended for current capacity

B) can result in setting selling prices that are not competitive

4) 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) cherry picking

12) The effect of spreading fixed manufacturing costs over a shrinking master-budget capacity utilization amount results in: A) greater utilization of capacity B) increased unit costs C) more competitive selling prices D) greater demand for the product

B) increased unit costs

13) The higher the denominator level, the: A) higher the budgeted fixed manufacturing cost rate B) lower the amount of fixed manufacturing costs allocated to each unit produced C) higher the favorable production-volume variance D) more likely actual output will exceed the denominator level

B) lower the amount of fixed manufacturing costs allocated to each unit produced

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

14) 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

B) production exceeds the denominator level

17) 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

B) subtracting fixed manufacturing overhead in beginning inventory from fixed manufacturing overhead in ending inventory

1) Throughput costing is also called: A) absorption costing B) super-variable costing C) mixed costing D) direct costing

B) super-variable costing

5) The breakeven point using absorption costing depends on all of the following factors, EXCEPT: A) the number of units sold during the current period B) the budgeted level of production C) the denominator level chosen for the fixed manufacturing overhead rate D) fulfillment of current production quotas

B) the budgeted level of production

8) 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

B) theoretical capacity

9) 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.

C) decrease inventory costs

3) 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.

C) deferring maintenance to accelerate production

13) 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.

C) fixed manufacturing costs

8) The marketing manager's performance evaluation is most fair when based on a denominator level using: A) practical capacity B) theoretical capacity C) master-budget capacity utilization D) normal capacity utilization

C) master-budget capacity utilization

8) 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) not affecting the manager's bonus

6) From the perspective of long-run product costing it is best to use: A) master-budget capacity utilization to highlight unused capacity B) normal capacity utilization for benchmarking purposes C) practical capacity for pricing decisions D) theoretical capacity for performance evaluation

C) practical capacity for pricing decisions

13) Which of the following inventory costing methods shown below is LEAST 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

C) throughput costing

2) 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

C) to reduce the undesirable incentive to build up inventories

1) Theoretical capacity: A) represents real capacity available to the company B) provides the best perspective of actual long-run costs C) when used for product costing results in the lowest cost estimate of the four capacity options D) replicates the cost of capacity in a competitor's cost structure

C) when used for product costing results in the lowest cost estimate of the four capacity options

46) Fixed manufacturing costs included in cost of goods available for sale + the production-volume variance will always = total fixed manufacturing costs under absorption costing. A) TRUE B) FALSE

A) TRUE

11) When large differences exist between practical capacity and master-budget capacity utilization, companies may: A) classify the difference as planned unused capacity B) use master-budget capacity utilization for setting selling prices C) use practical capacity for meaningful feedback to the marketing manager D) All of these answers are correct.

A) classify the difference as planned unused capacity

5) Master-budget capacity utilization: A) hides the amount of unused capacity B) represents the maximum units of production intended for current capacity C) provides the best cost estimate for benchmarking purposes D) when used for product costing results in the lowest cost estimate of the four capacity options

A) hides the amount of unused capacity

3) Variable and absorption costing may be combined with all costing systems EXCEPT: A) mixed costing B) actual costing C) normal costing D) standard costing

A) mixed costing

9) ________ provides the lowest estimate of denominator-level capacity. A) Practical capacity B) Theoretical capacity C) Master-budget capacity utilization D) Normal capacity utilization

C) Master-budget capacity utilization

10) Using master-budget capacity to set selling prices: A) avoids the recalculation of unit costs when expected demand levels change B) spreads fixed costs over available capacity C) can result in a downward demand spiral D) uses the perspective of long-run product pricing

C) can result in a downward demand spiral

7) ________ 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.

D) All of these answers are correct.

9) ________ 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.

D) All of these answers are correct.

18) 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

D) absorption costing operating income exceeds variable costing operating income