When all fixed manufacturing costs and variable manufacturing costs are included as Inventoriable costs the method being used is?

1) 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 are correct.

A) direct manufacturing costs

2) 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 are correct.

D) Both A and C are correct.

3) ________ 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 costingB) Mixed costingC) Absorption costingD) Standard costing

4) Absorption costing is required for all of the following except: A) generally accepted accounting principles B) determining a competitive selling price C) external reporting to shareholders D) income tax reporting

B) determining a competitive selling price

5) 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

C) includes fixed manufacturing overhead as an inventoriable cost

6) 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

A) expenses administrative costs as cost of goods sold

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.

8) ________ method(s) include(s) fixed manufacturing overhead costs as inventoriable costs. A) Variable costing B) Absorption costing C) Throughput costing 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.

10) ________ method(s) is required for tax reporting purposes. A) Variable costing B) Absorption costing C) Throughput costing D) All of these answers are correct.

11) ________ is a method of inventory costing in which only variable manufacturing costs are included as inventoriable costs.A) Fixed costingB) Variable costingC) Absorption costingD) Mixed costing

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

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

Gloria's Decorating produces and sells a mantel clock for $80 per unit. In 2011, 50,000 clocks were produced and 40,000 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 unit14) What is the inventoriable cost per unit using variable costing? A) $32 B) $35 C) $40 D) $60

Answer: BB) $35 Explanation: B) $30.00 + $2.00 + $3.00 = $35.00

Gloria's Decorating produces and sells a mantel clock for $80 per unit. In 2011, 50,000 clocks were produced and 40,000 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 unit15) What is the inventoriable cost per unit using absorption costing? A) $32 B) $35 C) $60 D) $80

C) $60 Explanation: C) $30 + $2 + $3 + $25 = $60

Kory's Auto produces and sells an auto part for $60.00 per unit. In 2011, 100,000 parts were produced and 75,000 units were sold. Other information for the year includes: Direct materials $24.00 per unit Direct manufacturing labor $ 4.50 per unit Variable manufacturing costs $ 1.50 per unit Sales commissions $ 6.00 per part Fixed manufacturing costs $750,000 per year Administrative expenses, all fixed $270,000 per year16) What is the inventoriable cost per unit using variable costing? A) $28.50 B) $30.00 C) $36.00 D) $43.50

B) $30.00 Explanation: B) $24.00 + $4.50 + $1.50 = $30.00

Kory's Auto produces and sells an auto part for $60.00 per unit. In 2011, 100,000 parts were produced and 75,000 units were sold. Other information for the year includes: Direct materials $24.00 per unit Direct manufacturing labor $ 4.50 per unit Variable manufacturing costs $ 1.50 per unit Sales commissions $ 6.00 per part Fixed manufacturing costs $750,000 per year Administrative expenses, all fixed $270,000 per year17) What is the inventoriable cost per unit using absorption costing? A) $30.00 B) $36.00 C) $37.50D) $43.50

C) $37.50Explanation: C) $24.00 + $4.50 + $1.50 + ($750,000 / 100,000) = $37.50

18) 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

TRUE OR FALSE19) The two most common methods of costing inventories in manufacturing companies are variable costing and absorption costing.

TRUE OR FALSE20) Absorption costing "absorbs" only fixed manufacturing costs.

Answer: FALSEExplanation: Absorption costing "absorbs" all manufacturing costs, both fixed and variable.

TRUE OR FALSE21) Variable costing includes all variable costsboth manufacturing and nonmanufacturingin inventory.

Answer: FALSEExplanation: Variable costing includes only manufacturing variable costs in inventory.

TRUE OR FALSE22) Under both variable and absorption costing, all variable manufacturing costs are inventoriable costs.

TRUE OR FALSE23) The main difference between variable costing and absorption costing is the way in which fixed manufacturing costs are accounted for.

TRUE OR FALSE24) Under absorption costing, all variable manufacturing costs and all fixed manufacturing costs are included as inventoriable costs.

25) For 2011, Nichols, Inc., had sales of 150,000 units and production of 200,000 units. Other information for the year included: Direct manufacturing labor $187,500 Variable manufacturing overhead 100,000 Direct materials 150,000 Variable selling expenses 100,000 Fixed administrative expenses 100,000 Fixed manufacturing overhead 200,000 There was no beginning inventory. Required: a. Compute the ending finished goods inventory under both absorption and variable costing

Answer: a. Absorption Variable Direct materials $150,000 $150,000 Direct manufacturing labor 187,500 187,500 Variable manufacturing overhead 100,000 100,000 Fixed manufacturing overhead 200,000 0 Total $637,500 $437,500 Unit costs: $637,500/200,000 units $3.1875 $437,500/200,000 units $2.1875 Ending inventory: 50,000 units × $3.1875 $159,375 50,000 units × $2.1875 $109,375

26) Charlassier Corporation manufactures and sells laptop computers and uses standard costing. For the month of September there was no beginning inventory, there were 3,000 units produced and 2,500 units sold. The manufacturing variable cost per unit is $385 and the variable operating cost per unit was $312.50. The fixed manufacturing cost is $450,000 and the fixed operating cost is $75,000. The selling price per unit is $925.Required:Prepare the income statement for Charlassier Corporation for September under variable costing.

Answer: Revenues (2,500 × $925) $2,312,500Variable costs Beginning inventory $ 0 Variable manufacturing costs (3,000 × $385) 1,155,000 Cost of goods available 1,155,000 Deduct ending inventory ( 500 × $385) (192,500) Variable cost of goods sold 962,500 Variable operating costs (2,500 × $312.50) 781,250 Total variable costs 1,743,750Contribution margin 568,750Fixed costs Fixed manufacturing costs 450,000 Fixed operating costs 75,000 Total fixed costs 525,000Operating income $ 43,750

1) The contribution-margin format of the income statement:A) is used with absorption costingB) calculates gross marginC) distinguishes between manufacturing and nonmanufacturing costsD) is used with variable costing

D) is used with variable costing

2) The gross-margin format of the income statement:A) is used with variable costingB) is used with absorption costingC) calculates contribution marginD) distinguishes variable costs from fixed costs

B) is used with absorption costing

3) 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

B) highlights the lump sum of fixed manufacturing costs

4) 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

A) distinguishes between manufacturing and nonmanufacturing costs

5) ________ are subtracted from sales to calculate contribution margin. A) Variable manufacturing costs B) Variable selling and administrative costs C) Fixed manufacturing costs D) Both A and B are correct.

D) Both A and B are correct.

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

D) Both A and C are correct.

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 goods 250 units7) What is cost of goods sold per unit using variable costing? A) $20 B) $23 C) $30 D) $45

Explanation: A) $20, only variable manufacturing costs are included when using variable costing.

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 goods 250 units8) What is cost of goods sold using variable costing? A) $35,000 B) $40,000 C) $47,250 D) $54,000

Answer: AExplanation: A) $20 × 1,750 units = $35,000

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 goods 250 units9) What is contribution margin using variable costing? A) $96,250 B) $91,000 C) $104,000 D) $110,000

Answer: BExplanation: B) ($75 × 1,750) - [($20 + $3) × 1,750 units] = $91,000

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 goods 250 units10) What is operating income using variable costing? A) $52,500 B) $78,750 C) $65,750 D) $47,000

Answer: DExplanation: D) Contribution margin of $91,000 - [($7 + $15) × 2,000 units] = $47,000

Barry's Hobbies produces and sells a luxury animal pillow for $80.00 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 $38 per unit Variable marketing costs $ 2 per unit Fixed manufacturing costs $60,000 per month Administrative expenses, all fixed $12,000 per month Ending inventories: Direct materials -0- WIP -0- Finished goods 750 units11) What is cost of goods sold per unit when using absorption costing? A) $38 B) $40 C) $58 D) $64

Answer: CExplanation: C) $38 + ($60,000 / 3,000 units) = $58

Barry's Hobbies produces and sells a luxury animal pillow for $80.00 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 $38 per unit Variable marketing costs $ 2 per unit Fixed manufacturing costs $60,000 per month Administrative expenses, all fixed $12,000 per month Ending inventories: Direct materials -0- WIP -0- Finished goods 750 units12) What is gross margin when using absorption costing? A) $95,000 B) $109,500 C) $154,500D) $49,500

Answer: DExplanation: D) [$80 - $38 - ($60,000/3,000)] × 2,250 units = $49,500

Barry's Hobbies produces and sells a luxury animal pillow for $80.00 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 $38 per unit Variable marketing costs $ 2 per unit Fixed manufacturing costs $60,000 per month Administrative expenses, all fixed $12,000 per month Ending inventories: Direct materials -0- WIP -0- Finished goods 750 units13) What is operating income when using absorption costing? A) $8,000 B) $33,000C) ($23,500) D) $37,500

Answer: BExplanation: B) [$80 - $38 - ($60,000/3,000)] × 2,250 units = gross margin - ($2 × 2,250) - $12,000 = $33,000

14) An favorable production-volume variance occurs when: A) the denominator level exceeds production B) production exceeds the denominator levelC) production exceeds unit sales D) unit sales exceed production

B) production exceeds the denominator level

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

16) 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 are correct.

B) fixed manufacturing costs

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

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

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.

20) Heston Company has the following information for the current year: Beginning fixed manufacturing overhead in inventory $190,000 Fixed manufacturing overhead in production 750,000 Ending fixed manufacturing overhead in inventory 50,000 Beginning variable manufacturing overhead in inventory $20,000 Variable manufacturing overhead in production 100,000 Ending variable manufacturing overhead in inventory 30,000What is the difference between operating incomes under absorption costing and variable costing? A) $140,000 B) $100,000 C) $80,000 D) $10,000

Answer: AExplanation: A) $190,000 - $50,000 = $140,000

21) The following information pertains to Brian Stone Corporation: Beginning fixed manufacturing overhead in inventory $60,000 Ending fixed manufacturing overhead in inventory 45,000 Beginning variable manufacturing overhead in inventory $30,000 Ending variable manufacturing overhead in inventory 14,250 Fixed selling and administrative costs $724,000 Units produced 5,000 units Units sold 4,800 unitsWhat is the difference between operating incomes under absorption costing and variable costing? A) $750 B) $7,500 C) $15,000 D) $30,750

Answer: CExplanation: C) $60,000 - $45,000 = $15,000

Stiller Corporation incurred fixed manufacturing costs of $12,000 during 2011. Other information for 2011 includes: The budgeted denominator level is 2,000 units. Units produced total 1,500 units. Units sold total 1,200 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.22) Fixed manufacturing costs expensed on the income statement (excluding adjustments for variances) total: A) $7,200 B) $9,600 C) $12,000 D) 0

Answer: AExplanation: A) $12,000 / 2,000 units = $6 × 1,200 = $7,200

Stiller Corporation incurred fixed manufacturing costs of $12,000 during 2011. Other information for 2011 includes: The budgeted denominator level is 2,000 units. Units produced total 1,500 units. Units sold total 1,200 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.23) Fixed manufacturing costs included in ending inventory total: A) $2,400 B) $3,000 C) $1,800 D) 0

Answer: CExplanation: C) $12,000 / 2,000 units = $6 × 300 = $1,800

Stiller Corporation incurred fixed manufacturing costs of $12,000 during 2011. Other information for 2011 includes: The budgeted denominator level is 2,000 units. Units produced total 1,500 units. Units sold total 1,200 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.24) The production-volume variance is: A) $4,000 B) $3,000 C) $4,800D) 0

Answer: BExplanation: B) $12,000 / 2,000 units = $6 × 500 = $3,000

Veach Corporation incurred fixed manufacturing costs of $6,000 during 2011. Other information for 2011 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.26) Fixed manufacturing costs expensed on the income statement (excluding adjustments for variances) total: A) $3,600 B) $4,800 C) $6,000 D) 0

Answer: CExplanation: C) $6,000 of fixed manufacturing costs is expensed as a lump sum.

Veach Corporation incurred fixed manufacturing costs of $6,000 during 2011. Other information for 2011 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.27) Fixed manufacturing costs included in ending inventory total: A) $1,200 B) $1,500 C) $900 D) 0

D) 0 Answer: DExplanation: D) Under variable costing no fixed manufacturing costs are included in inventory, and all are expensed on the income statement as a lump sum.

Veach Corporation incurred fixed manufacturing costs of $6,000 during 2011. Other information for 2011 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.28) The production-volume variance totals: A) $2,000 B) $1,500 C) $2,400 D) 0

D) 0 Answer: DExplanation: D) Variable costing has no production-volume variance.

Veach Corporation incurred fixed manufacturing costs of $6,000 during 2011. Other information for 2011 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.29) 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

D) $900 lower Answer: DExplanation: D) Different operating incomes are reported because the unit level of inventory increased during the accounting period by 150 units × $6 denominator rate = $900. Therefore, operating income is $900 lower under variable costing because $900 of fixed manufacturing costs remains in inventory under absorption.

Tunney Corporation incurred fixed manufacturing costs of $7,200 during 2011. Other information for 2011 includes: The budgeted denominator level is 1,600 units. Units produced total 2,000 units. Units sold total 1,900 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.30) 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) 0

Answer: AExplanation: A) $7,200 / 1,600 units = $4,50 × 1,900 = $8,550

Tunney Corporation incurred fixed manufacturing costs of $7,200 during 2011. Other information for 2011 includes: The budgeted denominator level is 1,600 units. Units produced total 2,000 units. Units sold total 1,900 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.31) Under absorption costing, the production-volume variance is: A) $450 B) $1,350 C) $1,800 D) 0

Answer: CExplanation: C) $7,200 / 1,600 units = $4.50 × 400 = $1,800

Tunney Corporation incurred fixed manufacturing costs of $7,200 during 2011. Other information for 2011 includes: The budgeted denominator level is 1,600 units. Units produced total 2,000 units. Units sold total 1,900 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.32) 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) 0

Answer: BExplanation: B) $7,200 of fixed manufacturing costs is expensed as a lump sum.

Tunney Corporation incurred fixed manufacturing costs of $7,200 during 2011. Other information for 2011 includes: The budgeted denominator level is 1,600 units. Units produced total 2,000 units. Units sold total 1,900 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.33) 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: AExplanation: A) Different operating incomes are reported because the unit level of inventory increased during the accounting period by 100 units × $4.50 denominator rate = $450. Therefore, operating income is $450 higher under absorption costing because $450 of fixed manufacturing costs remains in inventory under absorption costing.

34) 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) None of the above are correct.

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

36) 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 soldB) changes in the quantity of units producedC) changes in ending inventoryD) changes in sales price per unit

A) changes in the quantity of units actually sold

TRUE OR FALSE37) The contribution-margin format of the income statement is used with absorption costing.

Answer: FALSEExplanation: The contribution-margin format of the income statement is used with variable costing.

TRUE OR FALSE38) The contribution-margin format of the income statement distinguishes manufacturing costs from nonmanufacturing costs.

Answer: FALSEExplanation: The contribution-margin format of the income statement distinguishes variable costs from fixed costs.

TRUE OR FALSE39) The gross-margin format of the income statement highlights the lump sum of fixed manufacturing costs.

Answer: FALSEExplanation: The gross-margin format of the income statement distinguishes manufacturing costs from nonmanufacturing costs, but it does not highlight the lump sum of fixed manufacturing costs.

TRUE OR FALSE40) In variable costing, all nonmanufacturing costs are subtracted from contribution margin.

Answer: FALSEExplanation: In variable costing, all fixed costs are subtracted from contribution margin. Diff: 1

TRUE OR FALSE41) Direct costing is a perfect way to describe the variable-costing inventory method.

Answer: FALSEExplanation: Direct costing is a less than perfect way to describe this method because not all variable costs are inventoriable costs.

TRUE OR FALSE42) When variable costing is used, an income statement will show contribution margin.

TRUE OR FALSE43) The income under variable costing will always be the same as the income under absorption costing.

Answer: FALSEExplanation: The income under variable costing will sometimes be the same as the income under absorption costing.

TRUE OR FALSE44) Absorption costing is required by GAAP (Generally Accepted Accounting Principles) for external reporting.

TRUE OR FALSE45) When production deviates from the denominator level, a production-volume variance always exists under absorption costing.

TRUE OR FALSE46) Fixed manufacturing costs included in cost of goods available for sale + the production-volume variance will always = total fixed manufacturing costs under absorption costing.

TRUE OR FALSE47) The production-volume variance only exists under variable costing and not under absorption costing.

Answer: FALSEExplanation: The production-volume variance only exists under absorption costing and not under variable costing.

TRUE OR FALSE48) When the unit level of inventory decreases during an accounting period, operating income is lower under variable costing than absorption costing.

Answer: FALSEExplanation: Lower operating income is reported under variable costing than absorption costing when the unit level of inventory increases during an accounting period.

TRUE OR FALSE49) The difference in operating income under absorption costing and variable costing is due solely to the timing difference of expensing fixed manufacturing costs.

TRUE OR FALSE50) 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.

51) Bressler Company sells its products for $33 each. The current production level is 50,000 units, although only 40,000 units are anticipated to be sold. Unit manufacturing costs are:Direct materials $6.00Direct manufacturing labor $9.00Variable manufacturing costs $4.50Total fixed manufacturing costs $180,000Marketing expenses $3.00 per unit, plus $60,000 per year Required:a. Prepare an income statement using absorption costing.

a. Absorption-costing income statement: Sales (40,000 × $33) $1,320,000Cost of goods sold (40,000 × $23.10*) 924,000 Gross margin 396,000Marketing: Variable (40,000 × $3) $120,000 Fixed 60,000 180,000Operating income $216,000* $6.00 + $9.00 + $4.50 + ($180,000/50,000) = $23.10

51) Bressler Company sells its products for $33 each. The current production level is 50,000 units, although only 40,000 units are anticipated to be sold. Unit manufacturing costs are:Direct materials $6.00Direct manufacturing labor $9.00Variable manufacturing costs $4.50Total fixed manufacturing costs $180,000Marketing expenses $3.00 per unit, plus $60,000 per year Required:b. Prepare an income statement using variable costing.

b. Variable-costing income statement: Sales (40,000 × $33) $1,320,000Variable costs:Cost of goods sold (40,000 × $19.50*) $780,000Marketing (40,000 × $3) 120,000 900,000Contribution margin 420,000Fixed costs: Manufacturing $180,000 Marketing 60,000 240,000Operating income $180,000* $6.00 + $9.00 + $4.50 = $19.50

52) Ireland Corporation planned to be in operation for three years. ∙ During the first year, 20x1, it had no sales but incurred $240,000 in variable manufacturing expenses and $80,000 in fixed manufacturing expenses.∙ In 20x2, it sold half of the finished goods inventory from 20x1 for $200,000 but it had no manufacturing costs.∙ In 20x3, it sold the remainder of the inventory for $240,000, had no manufacturing expenses and went out of business.∙ Marketing and administrative expenses were fixed and totaled $40,000 each year. Required: a. Prepare an income statement for each year using absorption costing.

a. Absorption-costing income statements: 20X1 20X2 20X3 Sales $0 $200,000 $240,000 Cost of goods sold 0 160,000 160,000 Gross margin 0 40,000 80,000 Marketing and administrative 40,000 40,000 40,000 Operating income $(40,000) $ 0 $40,000

52) Ireland Corporation planned to be in operation for three years. ∙ During the first year, 20x1, it had no sales but incurred $240,000 in variable manufacturing expenses and $80,000 in fixed manufacturing expenses.∙ In 20x2, it sold half of the finished goods inventory from 20x1 for $200,000 but it had no manufacturing costs.∙ In 20x3, it sold the remainder of the inventory for $240,000, had no manufacturing expenses and went out of business.∙ Marketing and administrative expenses were fixed and totaled $40,000 each year. Required: b. Prepare an income statement for each year using variable costing.

b. Variable-costing income statements: 20X1 20X2 20X3 Sales $ 0 $200,000 $240,000 Variable expenses 0 120,000 120,000 Contribution margin 0 80,000 120,000 Fixed expenses: Manufacturing $80,000 $ 0 $ 0 Marketing and administrative 40,000 40,000 40,000 Total fixed 120,000 40,000 40,000 Operating income $(120,000) $40,000 $80,000

1) Companies 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 implemented D) Both A and B are correct.

D) Both A and B are correct.

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

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

4) Switching production to products that absorb the highest amount of fixed manufacturing costs is also called:A) cost reductionB) cherry pickingC) producing for salesD) throughput costing

5) 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 these answers are correct.

D) All of these answers are correct.

6) Which method is NOT a way to discourage producing for inventory?A) incorporate a carrying charge for inventoryB) focus on careful budgeting and inventory planningC) include nonfinancial measures when evaluating performanceD) evaluate performance on a quarterly basis only

D) evaluate performance on a quarterly basis only

7) 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

A) increasing the manager's bonus

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

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

10) Differences between absorption costing and variable costing are much smaller when a: A) large part of the manufacturing process is subcontracted out B) just-in-time inventory strategy is implemented C) significant portion of manufacturing costs are fixed D) Both A and B are correct.

D) Both A and B are correct.

11) 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

C) operating income solely reflects income from the sale of units and excludes the effects of manipulating production schedules

12) 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

TRUE OR FALSE13) Under absorption costing, managers can increase operating income by holding less inventories at the end of the period.

Answer: FALSEExplanation: Under absorption costing, managers can increase operating income by holding more inventories at the end of the period.

TRUE OR FALSE14) Many companies use variable costing for internal reporting to reduce the undesirable incentive to build up inventories.

TRUE OR FALSE15) Under absorption costing, managers can increase operating income by producing more inventory at the end of the accounting period.

TRUE OR FALSE16) 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.

TRUE OR FALSE17) One of the most common problems reported by companies using variable costing is the difficulty of classifying costs into fixed or variable categories.

TRUE OR FALSE18) Managers can increase operating income when absorption costing is used by producing less inventory.

Answer: FALSEExplanation: Managers can increase operating income when absorption costing is used by producing more inventory.

TRUE OR FALSE19) A manager can increase operating income by deferring maintenance beyond the current accounting period when absorption costing is used.

1) Throughput costing is also called:A) absorption costingB) super-variable costingC) mixed costingD) direct costing

B) super-variable costing

2) 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 period D) All of these answers are correct.

D) All of these answers are correct.

3) Variable and absorption costing may be combined with all costing systems EXCEPT:A) mixed costingB) actual costingC) normal costingD) standard costing

4) Throughput contribution equals:A) variable costs minus fixed costsB) revenues minus all direct labor costsC) revenues minus all direct material cost of goods soldD) revenues minus manufacturing overhead

C) revenues minus all direct material cost of goods sold

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

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

7) 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 correct.

C) fixed manufacturing costs are related to the capacity to produce rather than to the actual production of specific units

12) Which of the following inventory costing methods results in the LEAST amount of costs being inventoried? A) absorption costing B) variable costing C) throughput costing D) direct costing

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

TRUE OR FALSE14) Throughput costing considers only direct materials and direct manufacturing labor to be truly variable costs.

Answer: FALSEExplanation: Throughput costing considers only direct materials to be truly variable costs.

TRUE OR FALSE15) Throughput costing is also referred to as super-variable costing.

TRUE OR FALSE16) When production quantity exceeds sales, throughput costing results in reporting lower operating income than variable costing.

TRUE OR FALSE17) Throughput costing provides more incentive to produce for inventory than either variable costing or, especially, absorption costing.

TRUE OR FALSE18) A company may use absorption costing for external reports and still choose to use throughput costing for internal reports.

TRUE OR FALSE19) Throughput margin equals revenues minus all product costs.

Answer: FALSEExplanation: Throughput margin equals revenues minus all direct material cost of the goods sold.Diff: 1

TRUE OR FALSE20) Throughput costing results in a higher amount of manufacturing costs being placed in inventory than either variable or absorption costing.

Answer: FALSEExplanation: Throughput costing results in a lower amount of manufacturing costs being placed in inventory than either variable or absorption 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

2) ________ reduces theoretical capacity for unavoidable operating interruptions. A) Practical capacity B) Theoretical capacity C) Master-budget capacity utilization D) Normal capacity utilization

3) ________ 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

D) Normal capacity utilization

4) ________ is (are) based on the demand for the output of the plant. A) Practical capacity B) Master-budget capacity utilization C) Normal capacity utilization D) Both B and C are correct.

D) Both B and C are correct.

5) ________ is the level of capacity based on producing at full efficiency all the time.A) Practical capacityB) Theoretical capacityC) Normal capacityD) Demand capacity

6) Theoretical capacity allows for: A) preventive machine maintenance B) interruptions due to uncontrollable power failures C) rework of the expected number of defective units D) None of these answers is correct.

D) None of these answers is correct.

7) Theoretical capacity:A) is unattainable in the real world B) represents an ideal goal of capacity usage C) is based on engineering studies that provide information about the technical capabilities of machines used in production D) All of these answers are correct.

D) All of these answers are correct.

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

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) ________ is the level of capacity utilization that satisfies average customer demand over a period that includes seasonal, cyclical, and trend factors.A) Normal capacity utilizationB) Theoretical capacityC) Master-budget capacity utilizationD) Practical capacity

A) Normal capacity utilization

TRUE OR FALSE13) Determining the "right" level of capacity is one of the most strategic and difficult decisions managers face.

TRUE OR FALSE14) Both theoretical and practical capacity measure capacity in terms of demand for the output.

Answer: FALSEExplanation: Both theoretical and practical capacity measure capacity in terms of what a plant can supplyavailable capacity.

True or False15) Normal capacity utilization is the expected level of capacity utilization for the current budget period, which is typically one year.

Answer: FALSEExplanation: Master-budget capacity utilization is the expected level of capacity utilization for the current budget period, which is typically one year.

True or False16) Normal capacity utilization is NOT the same as master-budget capacity utilization.

True or False17) Theoretical capacity is the level of capacity based on producing at full efficiency all the time.

True or False18) Theoretical capacity allows time for regular machine maintenance.

Answer: FALSEExplanation: Theoretical capacity is the denominator-level concept that is based on producing at full efficiency all the time.

True or False19) Practical capacity is the level of capacity that reduces theoretical capacity by considering unavoidable operating interruptions, such as scheduled maintenance time, shutdowns for holidays, and so on.

True or False20) Practical capacity is unattainable in the real world

Answer: FALSEExplanation: Practical capacity is the level of capacity that reduces theoretical capacity by consideringunavoidable operating interruptions, such as scheduled maintenance time, shutdownsfor holidays, and so on. Theoretical capacity is unattainable in the real world.

True or False21) Theoretical capacity is the capacity level that represents what the firm is able to obtain under reasonable circumstances.

Answer: FALSEExplanation: Practical capacity is the capacity level that represents what the firm is able to obtain under reasonable circumstances.

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

2) The use of theoretical capacity results in an unrealistically low fixed manufacturing cost per unit because it is based on:A) real available capacityB) an unattainable level of capacityC) normal capacity utilizationD) normal costing

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

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