ch09tif_doc
CHAPTER 9: INVENTORY COSTING AND CAPACITY ANALYSIS
TRUE/FALSE
1.Absorption costing “absorbs” only variable manufacturing costs.
Answer:False Difficulty:1Objective:1
Absorption costing “absorbs” all manufacturing costs, both fixed and variable.
2.Variable costing includes all variable costs–both manufacturing and
nonmanufacturing–in inventory.
Answer:False Difficulty:1Objective:1
Variable costing includes only manufacturing variable costs in inventory.
3.Under both variable and absorption costing, all variable manufacturing costs are
inventoriable costs.
Answer:True Difficulty:1Objective:1
4.Under variable costing, fixed manufacturing costs are treated as an expense of the
period.
Answer:True Difficulty:1Objective:1
5.The contribution-margin format of the income statement is used with absorption costing.
Answer:False Difficulty:1Objective:2
The contribution-margin format of the income statement is used with variable costing.
6.The contribution-margin format of the income statement distinguishes manufacturing
costs from nonmanufacturing costs.
Answer:False Difficulty:1Objective:2
The contribution-margin format of the income statement distinguishes variable costs from fixed costs.
7.The gross-margin format of the income statement highlights the lump sum of fixed
manufacturing costs.
Answer:False Difficulty:2Objective:2
The gross-margin format of the income statement distinguishes manufacturing costs
from nonmanufacturing costs, but does not highlight the lump sum of fixed
manufacturing costs.
8.In absorption costing, all nonmanufacturing costs are subtracted from gross margin.
Answer:True Difficulty:1Objective:2
9.Direct costing is a perfect way to describe the variable-costing inventory method.
Answer:False Difficulty:2Objective:2
Direct costing is a less than perfect way to describe this method because not all variable costs are inventoriable costs.
10.When production deviates from the denominator level, a production-volume variance
always exists under absorption costing.
Answer:True Difficulty:1Objective:3
11.Fixed manufacturing costs included in cost of goods available for sale + the production-
volume variance will always = total fixed manufacturing costs under absorption costing.
Answer:True Difficulty:1Objective:3
12.The production-volume variance only exists under absorption costing and not under
variable costing.
Answer:True Difficulty:1Objective:3
13.When the unit level of inventory increases during an accounting period, operating
income is greater under variable costing than absorption costing.
Answer:False Difficulty:3Objective:3
Greater operating income is reported under variable costing than absorption costing
when the unit level of inventory decreases during an accounting period.
14.The difference in operating income under absorption costing and variable costing is due
solely to the timing difference of expensing fixed manufacturing costs.
Answer:True Difficulty:2Objective:3
15.If managers report inventories of zero at the start and end of each accounting period,
operating incomes under absorption costing and variable costing will be the same.
Answer:True Difficulty:2Objective:3
16.Many companies use variable costing for internal reporting to reduce the undesirable
incentive to build up inventories.
Answer:True Difficulty:2Objective:4
17.Under variable costing, managers can increase operating income by simply producing
more inventory at the end of the accounting period even if that inventory never gets
sold.
Answer:False Difficulty:3Objective:4
Under absorption costing, managers can increase operating income by producing more inventory at the end of the accounting period.
18.Nonfinancial measures such as comparing units in ending inventory this period to units
in ending inventory last period can help reduce buildup of excess inventory.
Answer:True Difficulty:1Objective:4
19.One of the most common problems reported by companies using variable costing is the
difficulty of classifying costs into fixed or variable categories.
Answer:True Difficulty:2Objective:4
20.Managers can increase operating income when absorption costing is used by producing
more inventory.
Answer:True Difficulty:2Objective:4
21. A manager is able to increase operating income by deferring maintenance beyond the
current accounting period when absorption costing is used.
Answer:True Difficulty:2Objective:4
22.Throughput costing considers only direct materials and direct manufacturing labor to be
truly variable costs.
Answer:False Difficulty:1Objective:5
Throughput costing considers only direct materials to be truly variable costs.
23.When production quantity exceeds sales, throughput costing results in reporting greater
operating income than variable costing.
Answer:False Difficulty:3Objective:5
When production quantity exceeds sales, throughput costing results in reporting lower operating income than variable costing.
24.Throughput costing provides more incentive to produce for inventory than does
absorption costing.
Answer:False Difficulty:1Objective:5
Throughput costing provides less incentive to produce for inventory than does
absorption costing.
25. A company may use absorption costing for external reports and still choose to use
throughput costing for internal reports.
Answer:True Difficulty:2Objective:5
26.Throughput contribution equals revenues minus all product costs.
Answer:False Difficulty:1Objective:5
Throughput contribution equals revenues minus direct materials costs.
27.Determining the “right” level of capacity is one of the most strategic and difficult
decisions managers face.
Answer:True Difficulty:2Objective:6
28.Both theoretical and practical capacity measure capacity in terms of demand for the
output.
Answer:False Difficulty:2Objective:6
Both theoretical and practical capacity measure capacity in terms of what a plant can supply–available capacity.
29.Normal capacity utilization is the expected level of capacity utilization for the current
budget period, typically one year.
Answer:False Difficulty:1Objective:6
Master-budget capacity utilization is the expected level of capacity utilization for the current budget period, typically one year.
30.Theoretical capacity is generally much larger than master-budget capacity utilization.
Answer:True Difficulty:1Objective:6
31.Theoretical capacity allows time for regular machine maintenance.
Answer:False Difficulty:2Objective:6
Theoretical capacity is the denominator-level concept that is based on producing at full efficiency all the time.
32.Estimates of human factors such as the increased risk of injury when machines work at
faster speeds are important when estimating practical capacity.
Answer:True Difficulty:2Objective:6
33.Theoretical capacity is unattainable in the real world.
Answer:True Difficulty:1Objective:6
34.If a company chooses practical capacity for planning purposes, it must also use
practical capacity for performance evaluation.
Answer:False Difficulty:2Objective:7
There is no requirement that one capacity-level concept has to be used for all purposes.
35.Theoretical capacity is most often used to cost a product.
Answer:False Difficulty:2Objective:7
Theoretical capacity is unattainable and therefore should not be used to cost a product.
Practical capacity is generally used to cost a product.
36.Practical capacity highlights capacity acquired but currently not used.
Answer:True Difficulty:2Objective:7
37.For benchmarking purposes it is best to use master-budget capacity because all
competitors utilize about the same about of capacity for production.
Answer:False Difficulty:2Objective:7
For benchmarking purposes it is best to use practical capacity because it best represents the long-run cost of capacity.
https://www.wendangku.net/doc/e44083038.html,ing normal capacity for pricing decisions can lead to setting noncompetitive selling
prices.
Answer:True Difficulty:3Objective:8
https://www.wendangku.net/doc/e44083038.html,ing master-budget capacity for pricing purposes can lead to a downward demand
spiral.
Answer:True Difficulty:2Objective:8
https://www.wendangku.net/doc/e44083038.html,ing practical capacity is best for evaluating the marketing manager’s performance for
a particular year.
Answer:False Difficulty:3Objective:8
Using master-budget capacity is best for evaluating the marketing manager’s
performance.
41.The production-volume variance is affected by the choice of capacity concept used to
determine the denominator level.
Answer:True Difficulty:2Objective:9
42.The higher the denominator level the higher the budgeted fixed manufacturing cost rate
per unit.
Answer:False Difficulty:2Objective:9
The higher the denominator level the lower the budgeted fixed manufacturing cost rate per unit.
43.Master-budget capacity utilization can be more reliably estimated than normal capacity
utilization.
Answer:True Difficulty:2Objective:9
44.Unused capacity is considered wasted resources and the result of poor planning.
Answer:False Difficulty:1Objective:9
Unused capacity is not considered wasted resources because capacity has to be
purchased in “large chunks” to accommodate future needs, not just the needs of the
current period.
45.Challenges only result from estimating the denominator level, but not the costs in the
numerator of the fixed manufacturing cost rate.
Answer:False Difficulty:1Objective:9
Challenges result from estimating both the denominator level and the costs in the
numerator of the fixed manufacturing cost rate.
46.Estimating capacity costs is unique to manufacturing and not applicable to
nonmanufacturing entities.
Answer:False Difficulty:1Objective:9
Estimating capacity costs is needed in both manufacturing and nonmanufacturing
entities.
47.The breakeven points are the same under both variable costing and absorption costing.
Answer:False Difficulty:2Objective:A
The breakeven points are generally different under both variable costing and absorption costing.
MULTIPLE CHOICE
48.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)
Answer:a Difficulty:1Objective:1
49.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)
Answer:d Difficulty:1Objective:1
50.Absorption costing is required for all EXCEPT
a.generally accepted accounting principles.
b.determining a competitive selling price.
c.external reporting to shareholders.
d.income tax reporting.
Answer:b Difficulty:2Objective:1
51.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 Difficulty:3Objective:1
52.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 Difficulty:3Objective:1
53.__________ method(s) expense(s) variable marketing costs in the period incurred.
a.Variable costing
b.Absorption costing
c.Throughput costing
d.All of the above
Answer:d Difficulty:1Objective:1
54.__________ method(s) include(s) fixed manufacturing overhead costs as inventoriable
costs.
a.Variable costing
b.Absorption costing
c.Throughput costing
d.All of the above
Answer:b Difficulty:1Objective:1
55.__________ method(s) expense(s) direct material costs as cost of goods sold.
a.Variable costing
b.Absorption costing
c.Throughput costing
d.All of the above
Answer:d Difficulty:1Objective:1
56.__________ method(s) is required for tax reporting purposes.
a.Variable costing
b.Absorption costing
c.Throughput costing
d.All of the above
Answer:b Difficulty:1Objective:1
57.Variable costing regards fixed manufacturing overhead as
a.an administrative cost.
b.an inventoriable cost.
c. a period cost.
d. a product cost.
Answer:c Difficulty:1Objective:1
58.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).
Answer:c Difficulty:2Objective:1
THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 59 AND 60.
Marie’s Decorating produces and sells a mantel clock for $100 per unit. In 20x1, 100,000 parts were produced and 80,000 units were sold. Other information for the year includes: Direct materials$30.00 per unit
Direct manufacturing labor$ 2.00 per unit
Variable manufacturing costs$ 3.00 per unit
Sales commissions$ 5.00 per part
Fixed manufacturing costs$25.00 per unit
Administrative expenses, all fixed$15.00 per unit
59.What is the inventoriable cost per unit using variable costing?
a.$32
b.$35
c.$40
d.$60
Answer:b Difficulty:2Objective:1
$30.00 + $2.00 + $3.00 = $35.00
60.What is the inventoriable cost per unit using absorption costing?
a.$32
b.$35
c.$60
d.$80
Answer:c Difficulty:2Objective:1
$30 + $2 + $3 + $25 = $60
THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 61 AND 62.
Gabe’s Auto produces and sells an auto part for $30.00 per unit. In 20x1, 100,000 parts were produced and 75,000 units were sold. Other information for the year includes: Direct materials$12.00 per unit
Direct manufacturing labor$ 2.25 per unit
Variable manufacturing costs$ 0.75 per unit
Sales commissions$ 3.00 per part
Fixed manufacturing costs$375,000 per year
Administrative expenses, all fixed$135,000 per year
61.What is the inventoriable cost per unit using variable costing?
a.$14.25
b.$15.00
c.$18.00
d.$21.75
Answer:b Difficulty:2Objective:1
$12.00 + $2.25 + $0.75 = $15.00
62.What is the inventoriable cost per unit using absorption costing?
a.$15.00
b.$18.00
c.$18.75
d.$21.75
Answer:c Difficulty:2Objective:1 $12.00 + $2.25 + $0.75 + ($375,000 / 100,000) = $18.75
63.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 Difficulty:3Objective:2
64.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 Difficulty:3Objective:2
65.__________ is(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)
Answer:d Difficulty:2Objective:2
66.__________ is(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)
Answer:d Difficulty:2Objective:2
THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 67 THROUGH70. Peggy’s Pillows produces and sells a decorative pillow for $75.00 per unit. In the first month of operation, 2,000 units were produced and 1,750 units were sold. Actual fixed costs are the same as the amount budgeted for the month. Other information for the month includes: Variable manufacturing costs$20.00 per unit
Variable marketing costs$ 3.00 per unit
Fixed manufacturing costs$ 7.00 per unit
Administrative expenses, all fixed$15.00 per unit
Ending inventories:
Direct materials-0-
WIP-0-
Finished goods250 units
67.What is cost of goods sold per unit using variable costing?
a.$20
b.$23
c.$30
d.$45
Answer:a Difficulty:1Objective:2
$20, only variable manufacturing costs are included when using variable costing.
68.What is cost of goods sold using variable costing?
a.$35,000
b.$40,000
c.$47,250
d.$54,000
Answer:a Difficulty:2Objective:2
$20 x 1,750 units = $35,000
69.What is contribution margin using variable costing?
a.$96,250
b.$91,000
c.$104,000
d.$110,000
Answer:b Difficulty:3Objective:2
($75 x 1,750)-[($20 + $3) x 1,750 units] = $91,000
70.What is operating income using variable costing?
a.$52,500
b.$78,750
c.$65,750
d.$47,000
Answer:d Difficulty:3Objective:2
Contribution margin of $91,000-[($7 + $15) x 2,000 units] = $47,000
THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 71 THROUGH 73. Andrea’s Hobbies produces and sells a luxury animal pillow for $40.00 per unit. In the first month of operation, 3,000 units were produced and 2,250 units were sold. Actual fixed costs are the same as the amount budgeted for the month. Other information for the month includes: Variable manufacturing costs$19 per unit
Variable marketing costs$ 1 per unit
Fixed manufacturing costs$30,000 per month
Administrative expenses, all fixed$6,000 per month
Ending inventories:
Direct materials-0-
WIP-0-
Finished goods750 units
71.What is cost of goods sold per unit when using absorption costing?
a.$19
b.$20
c.$29
d.$32
Answer:c Difficulty:2Objective:2
$19 + ($30,000 / 3,000 units) = $29
72.What is gross margin when using absorption costing?
a.$45,000
b.$54,750
c.$77,250
d.$24,750
Answer:d Difficulty:2Objective:2
[$40-$19-($30,000/3,000)] x 2,250 units = $24,750
73.What is operating income when using absorption costing?
a.$4,000
b.$16,500
c.($11,750)
d.$18,750
Answer:b Difficulty:3Objective:2
[$40-$19-($30,000/3,000)] x 2,250 units = gross margin–($1 x 2,250)–$6,000 =
$16,500
74.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 Difficulty:2Objective:3
75.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 Difficulty:2Objective:3
76.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).
Answer:b Difficulty:2Objective:3
77.One possible means of determining the difference between operating incomes for
absorption costing and variable costing is
a.by subtracting sales of the previous period from sales of this period.
b.by subtracting fixed manufacturing overhead in beginning inventory from fixed
manufacturing overhead in ending inventory.
c.by multiplying the number of units produced by the budgeted fixed manufacturing
cost rate.
d.by adding fixed manufacturing costs to the production-volume varianc
e.
Answer:b Difficulty:3Objective:3
78.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 incom
e.
Answer:d Difficulty:3Objective:3
79.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 Difficulty:3Objective:3
80.Helton Company has the following information for the current year.
Beginning fixed manufacturing overhead in inventory$95,000
Fixed manufacturing overhead in production375,000
Ending fixed manufacturing overhead in inventory25,000
Beginning variable manufacturing overhead in inventory$10,000
Variable manufacturing overhead in production50,000
Ending variable manufacturing overhead in inventory15,000 What is the difference between operating incomes under absorption costing and
variable costing?
a.$70,000
b.$50,000
c.$40,000
d.$5,000
Answer:a Difficulty:3Objective:3
$95,000-$25,000 = $70,000
81.The following information pertains to Brian Stone Corporation:
Beginning fixed manufacturing overhead in inventory$60,000
Ending fixed manufacturing overhead in inventory45,000
Beginning variable manufacturing overhead in inventory$30,000
Ending variable manufacturing overhead in inventory14,250
Fixed selling and administrative costs$724,000
Units produced5,000 units
Units sold4,800 units What is the difference between operating incomes under absorption costing and
variable costing?
a.$750
b.$7,500
c.$15,000
d.$30,750
Answer:c Difficulty:3Objective:3
$60,000-$45,000 = $15,000
THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 82 THROUGH 85. Heinrich Corporation incurred fixed manufacturing costs of $6,000 during 20x4. Other information for 20x4 includes:
The budgeted denominator level is 1,000 units.
Units produced total 750 units.
Units sold total 600 units.
Beginning inventory was zero.
The company uses ABSORPTION COSTING and the fixed manufacturing cost rate is based on the budgeted denominator level. Manufacturing variances are closed to cost of goods sold.
82.Fixed manufacturing costs expensed on the income statement (excluding adjustments
for variances) total
a.$3,600.
b.$4,800.
c.$6,000.
d.zero.
Answer:a Difficulty:3Objective:3
$6,000 / 1,000 units = $6 x 600 = $3,600
83.Fixed manufacturing costs included in ending inventory total
a.$1,200.
b.$1,500.
c.$900.
d.zero.
Answer:c Difficulty:3Objective:3
$6,000 / 1,000 units = $6 x 150 = $900
84.The production-volume variance is
a.$2,000.
b.$1,500.
c.$2,400.
d.zero.
Answer:b Difficulty:3Objective:3
$6,000 / 1,000 units= $6 x 250 = $1,500
85.Operating income using absorption costing will be __________ than operating income
if using variable costing.
a.$2,400 higher
b.$2,400 lower
c.$900 higher
d.$3,600 lower
Answer:c Difficulty:3Objective:3
Different operating incomes are reported because the unit level of inventory increased during the accounting period by 150 units x $6 denominator rate = $900. Therefore, operating income is $900 higher under absorption costing because $900 of fixed manufacturing costs remains in inventory.
THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 86 THROUGH 89. Veach Corporation incurred fixed manufacturing costs of $6,000 during 20x4. Other information for 20x4 includes:
The budgeted denominator level is 1,000 units.
Units produced total 750 units.
Units sold total 600 units.
Beginning inventory was zero.
The company uses VARIABLE COSTING and the fixed manufacturing cost rate is based on the budgeted denominator level. Manufacturing variances are closed to cost of goods sold.
86.Fixed manufacturing costs expensed on the income statement (excluding adjustments
for variances) total
a.$3,600.
b.$4,800.
c.$6,000.
d.zero.
Answer:c Difficulty:3Objective:3
$6,000 of fixed manufacturing costs is expensed as a lump sum.
87.Fixed manufacturing costs included in ending inventory total
a.$1,200.
b.$1,500.
c.$900.
d.zero.
Answer:d Difficulty:3Objective:3
Under variable costing no fixed manufacturing costs are included in inventory, and all are expensed on the income statement as a lump sum.
88.The production-volume variance totals
a.$2,000.
b.$1,500.
c.$2,400.
d.zero.
Answer:d Difficulty:3Objective:3
Variable costing has no production-volume variance.
89.Operating income using variable costing will be __________ than operating income if
using absorption costing.
a.$2,400 higher
b.$2,400 lower
c.$3,600 higher
d.$900 lower
Answer:d Difficulty:3Objective:3
Different operating incomes are reported because the unit level of inventory increased during the accounting period by 150 units x $6 denominator rate = $900. Therefore, operating income is $900 lower under variable costing because $900 of fixed manufacturing costs remains in
inventory under absorption.
THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 90 THROUGH 93. Morse Corporation incurred fixed manufacturing costs of $7,200 during 20x4. Other information for 20x4 includes:
The budgeted denominator level is 800 units.
Units produced total 1,000 units.
Units sold total 950 units.
Beginning inventory was zero.
The fixed manufacturing cost rate is based on the budgeted denominator level. Manufacturing variances are closed to cost of goods sold.
90.Under absorption costing, fixed manufacturing costs expensed on the income statement
(excluding adjustments for variances) total
a.$8,550.
b.$9,000.
c.$7,200.
d.zero.
Answer:a Difficulty:3Objective:3
$7,200 / 800 units = $9 x 950 = $8,550
91.Under absorption costing, the production-volume variance is
a.$450.
b.$1,350.
c.$1,800.
d.zero.
Answer:c Difficulty:3Objective:3
$7,200 / 800 units = $9 x 200 = $1,800
92.Under variable costing, the fixed manufacturing costs expensed on the income
statement (excluding adjustments for variances) total
a.$8,550.
b.$7,200.
c.$9,000.
d.zero.
Answer:b Difficulty:2Objective:3
$7,200 of fixed manufacturing costs is expensed as a lump sum.
93.Operating income using absorption costing will be __________ operating income if
using variable costing.
a.$450 higher than
b.$900 higher than
c.$1,350 lower than
d.the same as
Answer:a Difficulty:3Objective:3
Different operating incomes are reported because the unit level of inventory increased during the accounting period by 50 units x $9 denominator rate = $450. Therefore, operating income is $450 higher under absorption costing because $450 of fixed manufacturing costs remains in inventory under absorption costing.
94.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 affecte
d.
d.cannot be determined using only the above information.
Answer:a Difficulty:3Objective:3
95.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 affecte
d.
d.cannot be determined using only the above information.
Answer:c Difficulty:3Objective:3
https://www.wendangku.net/doc/e44083038.html,panies 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 implemente
d.
d.of both (a) and (b).
Answer:d Difficulty:2Objective:4
97.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 accurat
e.
Answer:c Difficulty:2Objective:4
98.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 the abov
e.
Answer:c Difficulty:2Objective:4
99.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 the abov
e.
Answer:d Difficulty:2Objective:4
100.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 bo nus.
c.not affecting the manager’s bonus.
d.being unable to determine the manager’s bonus using only the above information.
Answer:a Difficulty:3Objective:4
101.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 Difficulty:2Objective:4
102.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.do all of the abov
e.
Answer:c Difficulty:2Objective:4
103.Differences between absorption costing and variable costing are much smaller when
a. a large part of the manufacturing process is subcontracted out.
b. a just-in-time inventory strategy is implemented.
c. a significant portion of manufacturing costs are fixe
d.
d.both (a) and (b) are don
e.
Answer:d Difficulty:2Objective:4
104.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 Difficulty:2Objective:4
105.Advocates of throughput costing argue that
a.only direct materials are truly variable.
b.direct manufacturing labor is relatively fixed.
c.variable manufacturing costs are a cost of the perio
d.
d.all of the above are tru
e.
Answer:d Difficulty:2Objective:5
106.If 600 units are produced and only 400 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
Answer:a Difficulty:2Objective:5
107.If 400 units are produced and 600 units are sold, __________ results in the greatest amount of operating income.
a.throughput costing
b.variable costing
c.absorption costing
d.period costing
Answer:a Difficulty:2Objective:5
108.Advocates of throughput costing maintain that
a.both variable and fixed are necessary to produce goods; therefore, both types of
costs should be inventoried.
b.all manufacturing costs plus some design costs should be inventoried.
c.fixed manufacturing costs are related to the capacity to produce rather than to the
actual production of specific units.
d.both (a) and (c) are tru
e.
Answer:c Difficulty:3Objective:5