Shipp, Inc. budgets the following costs for a normal monthly volume of 500 units selling for $4,000 each.
The product cost per unit using absorption costing is
$2,800
Shipp, Inc. budgets the following costs for a normal monthly volume of 500 units selling for $4,000 each.
The product cost per unit using variable costing is
$1,600
Shipp, Inc. budgets the following costs for a normal monthly volume of 500 units selling for $4,000 each.
The income (loss) using absorption costing when 500 units are produced and 400 units are sold is
$720,000 loss
Shipp, Inc. budgets the following costs for a normal monthly volume of 500 units selling for $4,000 each.
The income (loss) using variable costing when 500 units are produced and 400 units are sold is
$840,000 loss
Exeter Mfg. Co. introduced a new mass-produced specialty product early in the year. Production and sales of this product for the first four months are as follows:
In which month(s) was variable costing income higher than absorption costing income?
4
Exeter Mfg. Co. introduced a new mass-produced specialty product early in the year. Production and sales of this product for the first four months are as follows:
In which month(s) was variable costing income lower than absorption costing income?
1, 2, and 3
Exeter Mfg. Co. introduced a new mass-produced specialty product early in the year. Production and sales of this product for the first four months are as follows:
Compared to using absorption costing, using variable costing will result in operating income
Lower
Bella, Inc. has operated for 2 years.
Cost of goods sold for year 1 using variable costing would be
$6,400
Bella, Inc. has operated for 2 years.
Operating income for year 1 using variable costing would be
$400
Bella, Inc. has operated for 2 years.
Ending inventory for year 2 using variable costing would be
$800
Bella, Inc. has operated for 2 years.
Operating income for year 2 using variable costing would be
$1,450
Baylor, Inc. just finished its second year of operations.
The product cost per unit during year 1 using absorption would be
$85,000
Baylor, Inc. just finished its second year of operations.
The operating income for year 1 using absorption costing would be
$(9,800)
Baylor, Inc. just finished its second year of operations.
The ending inventory for year 2 using absorption costing would be
$34,000
Baylor, Inc. just finished its second year of operations.
The operating income for year 2 using absorption costing would be
$600
Rubble Enterprises develops on annual overhead budget at the start of each year (which has remained unchanged for the last 2 years), and closes any over or underapplied overhead at the year end. For the firm's single product that following ending inventor
2
Rubble Enterprises develops on annual overhead budget at the start of each year (which has remained unchanged for the last 2 years), and closes any over or underapplied overhead at the year end. For the firm's single product that following ending inventor
3
Rubble Enterprises develops on annual overhead budget at the start of each year (which has remained unchanged for the last 2 years), and closes any over or underapplied overhead at the year end. For the firm's single product that following ending inventor
1
Total production overhead is treated as a product cost when using
Absorption costing
Variable production overhead is allocated to inventory when using
Absorption costing and variable costing
Under which costing method(s) are administrative and selling costs considered period expenses? I. Absorption costing; II. Throughput costing; III. Variable costing;
I, II, and III
Any costs traced or allocated to inventory are expensed when units are sold in which of the following costing method(s): I. Absorption; II. Throughput; III. Variable;
I, II, and III
Direct materials costs are deducted from revenues when units are sold under which of the following costing method(s)? I. Absorption; II. Throughput; III. Variable;
I, II, and III
The chief executive officer told Nick, the production manager at BRS Corporation, to reduce costs and increase profits. In response, Nick decided to produce more units for inventory. BRS is most likely using
Absorption costing.
Which costing method matches costs and revenues most appropriately for generally accepted accounting principles?
Absorption costing
During its first year of operations, Kima Corp. experienced the following:
The amount of variable costs deducted from revenues under the variable costing approach would be
$726,000
During its first year of operations, Kima Corp. experienced the following:
The amount of fixed costs deducted from revenues under the absorption costing approach would be
WRONG $410,000
During its first year of operations, Kima Corp. experienced the following:
If Kima calculates operating income under the variable costing method as opposed to the absorption costing method, operating income will be
$45,000 lower
During its first year of operations, Kima Corp. experienced the following:
The cost of goods sold under absorption costing would be
$900,000
Philpott's operating income using absorption costing is $100. Its inventories using both absorption and variable costing are as follows:
Under variable costing, operating income would be:
$96
Variable costing income for the period July 1 through September 30 was $400. Inventory data are as follows:
What is the income if absorption costing is used?
$500
General Mfg. Co. budgeted fixed overhead costs of %25,000 per quarter and 1,000 units per quarter in its normal absorption costing system.
The volume variance was favorable in quarter(s)?
2 and 3
General Mfg. Co. budgeted fixed overhead costs of %25,000 per quarter and 1,000 units per quarter in its normal absorption costing system.
The volume variance in quarter 1 was
$2,500 Unfavorable
General Mfg. Co. budgeted fixed overhead costs of %25,000 per quarter and 1,000 units per quarter in its normal absorption costing system.
The volume variance for the year was
Favorable
Exter Manufacturing experienced the following activity over the last four years.
The volume variance for Year 2 is
$20,000 Favorable
Under generally accepted accounting principles, absorption costing is used for (Job Costing;Process Costing):
Yes;Yes
In variable costing
Only variable production costs are considered product costs
Absorption costing
Is used for external reporting purposes
Under the variable costing method, fixed production overhead is
Expensed in the period incurred
Absorption costing will produce a larger operating income than variable costing if
Units produced exceed units sold
When calculating an estimated fixed production cost overhead allocation rate, accountants choose the
Allocation base to use as the denominator
Supply-based capacity levels include: I. Normal capacity; II. Practical capacity; III. Theoretical capacity;
II and III only
The capacity level which assumes continuous, uninterrupted production 365 days per year is called
Theoretical capacity
What type of capacity is the upper capacity limit that takes into account the organization's regularly scheduled times for production?
Practical capacity
Practical capacity is estimated based on
Engineering studies and labor use patterns
For income tax accounting, the Internal Revenue Service requires the use of
Practical capacity
The difference between practical capacity and theoretical capacity is
Expected downtimes
Which of the following are demand-based capacity levels? I. Normal capacity; II. Budgeted capacity; III. Practical capacity;
I and II only
The volume variance is calculated as
Difference between estimated fixed overhead costs and allocated fixed overhead costs
Volume variances are calculated for which of the following reasons? I. GAAP requires that actual costs be recorded in the income statement and balance sheet; II. Estimates are used for allocation rates so that costs can be allocated when actual costs are
I and II only
An estimated fixed overhead allocation rate
Can be considered an estimated cost of capacity per unit
Which of the following types of capacity can result in an unrealistically small fixed overhead allocation rate if used as an allocation base?
Theoretical capacity
Throughput costing is a modified form of
Variable costing
In throughput costing, direct labor and variable overhead are treated as
Fixed costs
Throughput costing was developed in the 1980s as part of
The theory of constraints
Which of the following are considered product costs in a throughput costing income statement? I. Direct materials; II. Direct labor; III. Variable overhead;
I only
Under throughput costing, inventory is valued using
Direct materials costs only
Throughput contribution is computed as
Number of units sold � (price per unit - material cost per unit)
In a throughout costing system, all overhead costs are treated as: I. Period costs; II. Fixed costs; III. Deductions from throughput contribution;
I, II, and III
PFA Corporation uses a throughout costing system and reported the following information for its first month of operations:
PFA's total throughput product cost incurred was
$490
PFA Corporation uses a throughput costing system and reported the following information for its first month of operations:
PFA's throughput cost of goods sold was
$420
PFA Corporation uses a throughout costing system and reported the following information for its first month of operations:
PFA's throughput ending inventory was
$70
PFA Corporation uses a throughout costing system and reported the following information for its first month of operations:
PFA's throughput contribution was
$2,580
PFA Corporation uses a throughout costing system and reported the following information for its first month of operations:
Total period costs reported on PFA's throughput costing income statement were
$2,310
PFA Corporation uses a throughout costing system and reported the following information for its first month of operations:
Under which of the following costing methods would PFA report the highest operating income?
Absorption costing
PFA Corporation uses a throughout costing system and reported the following information for its first month of operations:
PFA's throughput costing operating income will be
$270
Throughput costing can be used for: I. Internal reporting; II. External reporting; III. Income tax reporting;
I only
Which costing method(s) conform with GAAP (Absorption;Variable;Throughput)?
Yes;No;No
Which of the following correctly identifies the best use for each costing method? E;External reporting: P;Performance evaluations: S;Short-term capacity decisions (Absorption;Variable;Throughput):
E;P;S
Direct material and direct labor costs are assigned to inventory when using: I. Absorption costing; II. Throughput costing; III. Variable costing;
I and III only
Brady, Inc. uses a normal absorption costing system in which the overhead rate and variable manufacturing costs have remained unchanged for the last 2 years. During the current year the following activity occurred:
The fixed overhead in cost of goods sold
$72,000
Brady, Inc. uses a normal absorption costing system in which the overhead rate and variable manufacturing costs have remained unchanged for the last 2 years. During the current year the following activity occurred
The variable product cost per unit was
$4.90
Brady, Inc. uses a normal absorption costing system in which the overhead rate and variable manufacturing costs have remained unchanged for the last 2 years. During the current year the following activity occurred
The number of units produced was
WRONG 20,000
Brady, Inc. uses a normal absorption costing system in which the overhead rate and variable manufacturing costs have remained unchanged for the last 2 years. During the current year the following activity occurred
The number of units in ending finished go
WRONG 1,000
Brady, Inc. uses a normal absorption costing system in which the overhead rate and variable manufacturing costs have remained unchanged for the last 2 years. During the current year the following activity occurred
The sales revenue for the year was
$215,040
Brady, Inc. uses a normal absorption costing system in which the overhead rate and variable manufacturing costs have remained unchanged for the last 2 years. During the current year the following activity occurred
If variable costing had been used, operat
$27,040
Brady, Inc. uses a normal absorption costing system in which the overhead rate and variable manufacturing costs have remained unchanged for the last 2 years. During the current year the following activity occurred
If variable costing had been used, the co
$98,000
Variable costing will produce a larger operating income than absorption costing if
Sales exceed production
Under absorption costing, fixed overhead is
Expensed when the inventory is sold
When reconciling from variable costing income to absorption costing income, if production exceeded sales and LIFO is used, then the
Fixed overhead in the ending inventory is added
Musa Company's inventory balances for the beginning and ending of 2004, using both variable costing and absorption costing, are shown below:
Variable costing income for 2004 was $3,460. Musa uses LIFO. If absorption costing had been used, income for 2004
$3,620
Which inventory costing method treats direct materials as a product cost?
All of the above
Which inventory costing method treats direct labor as a product cost?
Both (a) and (b)
Which inventory costing method treats variable overhead as a product cost?
Both (a) and (b)
Which inventory costing method treats fixed overhead as a product cost?
Absorption costing
Which inventory costing method treats variable selling costs as product costs?
None of the above
Whidby Corporation has budgeted overhead as $100,000 plus %5 per unit for the current year. The denominator capacity is 40,000 units per year.
The volume variance for the first quarter was
$0
Whidby Corporation has budgeted overhead as $100,000 plus %5 per unit for the current year. The denominator capacity is 40,000 units per year.
The volume variance was unfavorable in quarters
2, 3, and 4
Whidby Corporation has budgeted overhead as $100,000 plus %5 per unit for the current year. The denominator capacity is 40,000 units per year.
The volume variance for the year was
$10,000 unfavorable
Orca, Inc experienced the following activity and costs during its first three years of operations:
Operating income for 2003 using variable costing was
$94,500
Orca, Inc experienced the following activity and costs during its first three years of operations:
Assuming Orca uses actual costing, operating income for 2003 using absorption costing was
$103,500
Orca, Inc experienced the following activity and costs during its first three years of operations:
Assuming a denominator level of 20,000 units and that Orca closes any volume variance to cost of goods sold, operating income for 2003 using absorption cost
$104,400
Orca, Inc experienced the following activity and costs during its first three years of operations:
Assume a denominator level of 20,000 units and that Orca uses LIFO and closes any volume variance to cost of goods sold. Operating income for 2005 using abs
$85,500
Which of the following statements about the contribution margin format of the income statements is false?
Variable non-manufacturing costs are deducted as product costs
Which of the following statements about the traditional format of the income statements is true?
Only manufacturing costs are deducted from sales to arrive at gross margin
A favorable volume variance occurs when the
Number of units produced exceeds the denominator level
When managers are compensated based on income levels, they may have an incentive to overproduce inventory units if income is computed using
Absorption costing
Some companies use throughput costing for internal purposes because
All of the above
When production exceeds sales and costs from year to year have been stable, which method will compute the highest operating income?
Absorption costing
The fixed manufacturing overhead rate will be the lowest when the denominator level used is
Theoretical capacity
A company using absorption costing had an unfavorable volume variance. Which of the following statements is true?
The unfavorable volume variance reduces reported income
The following income statements are produced according to generally accepted accounting principles
Absorption costing
Absorption costing income statements
Allocate fixed production costs to inventory
Variable costing income statements
Assign direct material and direct labor costs to inventory
Under absorption costing, production overhead is allocated to inventory so that
Inventory costs can be used in decision making
Throughput costing income statements
Help managers plan for the short term
Fixed overhead volume variances arise because
An estimate of production volume is used for the denominator in calculating the fixed overhead allocation rate
A fixed overhead volume variance
Is prorated to Work in process, Finished Goods, and Cost of Goods Sold if it is a material amount
Normal capacity reflects
The estimate of average capacity over time
Practical capacity reflects
The capacity level taking into account holidays and other down time
Theoretical capacity reflects
The capacity level with no reduction for holidays or other down time
Inventory cost under variable costing includes
Only variable production costs
Inventory cost under absorption costing includes
Variable and fixed production costs
Inventory cost under throughput costing includes
Only direct materials costs
Absorption costing income statements are produced for
External decision makers
Variable costing income statements are produced for
Internal decision makers
Practical capacity as a plant capacity concept
Includes consideration of idle time caused by both limited sales orders and human and equipment inefficiencies
Which method of inventory costing treats direct manufacturing costs and manufacturing overhead costs, both variable and fixed, as inventoriable costs?
Absorption costing
For the month ended October 31st, there are no finished goods or work in process inventories at the beginning of the month for the Fleetfood Company.
What is the value of ending inventory under variable costing?
$540
For the month ended October 31st, there are no finished goods or work in process inventories at the beginning of the month for the Fleetfood Company.
What would Fleetfoot's finished goods inventory cost be at December 31st under the absorption costing met
$810
For the month ended October 31st, there are no finished goods or work in process inventories at the beginning of the month for the Fleetfood Company.
Under absorption costing, Fleetfoot's operating income for the year is
$2,112
For the month ended October 31st, there are no finished goods or work in process inventories at the beginning of the month for the Fleetfood Company.
Under variable costing, Fleetfoot's operating income for the year is
$1,842
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