ACC 350 Week 10 Quiz – Strayer



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Quiz 8 Chapter 9  

Inventory Costing and Capacity Analysis

1)

The two most common methods of costing inventories in manufacturing companies are variable costing and fixed costing. 

2)

Absorption costing "absorbs" only variable manufacturing costs.  

3)

Variable costing includes all variable costsboth manufacturing and nonmanufacturingin inventory.  

4)

Under both variable and absorption costing, all variable manufacturing costs are inventoriable costs.  

5)

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

6)

Under variable costing, fixed manufacturing costs are treated as an expense of the period.  

7)

The contribution-margin format of the income statement is used with absorption costing.  

8)

The contribution-margin format of the income statement distinguishes manufacturing costs from nonmanufacturing costs.  

9)

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

10)

In absorption costing, all nonmanufacturing costs are subtracted from gross margin.  

11)

Direct costing is a perfect way to describe the variable-costing inventory method.  

12)

When variable costing is used, an income statement will show gross margin.  

13)

The income under variable costing will always be the same as the income under absorption costing.  

14)

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

15)

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

16)

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

17)

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

18)

When the unit level of inventory increases during an accounting period, operating income is greater under variable costing than absorption costing.  

19)

The difference in operating income under absorption costing and variable costing is due solely to the timing difference of expensing fixed manufacturing costs.  
20)

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.  

21)

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

22)

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

23)

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.  

24)

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.  

25)

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

26)

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

27)

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

28)

Throughput costing considers only direct materials and direct manufacturing labor to be truly variable costs.  

29)

Throughput costing is also referred to as super-variable costing. 

30)

When production quantity exceeds sales, throughput costing results in reporting greater operating income than variable costing.  

31)

Throughput costing provides more incentive to produce for inventory than does absorption costing.  

32)

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

33)

Throughput contribution equals revenues minus all product costs.  

34)

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

35)

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

36)

Both theoretical and practical capacity measure capacity in terms of demand for the output.  

37)

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

38)

Normal capacity utilization is not the same as master-budget capacity utilization. 

39)

Theoretical capacity is generally much larger than master-budget capacity utilization.  

40)

Theoretical capacity allows time for regular machine maintenance.  

41)

Estimates of human factors such as the increased risk of injury when machines work at faster speeds are important when estimating practical capacity.  

42)

Theoretical capacity is unattainable in the real world.  

43)

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

44)

Fixed manufacturing cost per unit will be the same no matter what capacity concept is used. 

45)

Data from normal costing and standard costing are used in pricing and product-mix decisions. 

46)

If a company chooses practical capacity for planning purposes, it must also use practical capacity for performance evaluation.  

47)

Theoretical capacity is most often used to cost a product.  

48)

Practical capacity highlights capacity acquired but currently not used.  

49)

For benchmarking purposes it is best to use master-budget capacity because all competitors use about the same about of capacity for production.  

50)

Using normal capacity for pricing decisions can lead to setting noncompetitive selling prices.  

51)

Using master-budget capacity for pricing purposes can lead to a downward demand spiral.  

52)

Using practical capacity is best for evaluating the marketing manager's performance for a particular year.  

53)

The production-volume variance is affected by the choice of capacity concept used to determine the denominator level.  

54)

The higher the denominator level the higher the budgeted fixed manufacturing cost rate per unit.  

55)

Master-budget capacity utilization can be more reliably estimated than normal capacity utilization.  

56)

Unused capacity is considered wasted resources and the result of poor planning.  

57)

Challenges only result from estimating the denominator level, but not the costs in the numerator of the fixed manufacturing cost rate.  

58)

Estimating capacity costs is unique to manufacturing and it is not applicable to nonmanufacturing entities.  

59)

If the capacity level chosen to calculate the budgeted fixed overhead cost rate is more than the actual production, an unfavorable production-volume variance will result.  
60)

The breakeven points are the same under both variable costing and absorption costing.  

61)

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.  

62)

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.  

63)

________ is a method of inventory costing in which all variable and fixed manufacturing costs are included as inventoriable costs. 
A)

Variable costing 
B)

Mixed costing 
C)

Absorption costing 
D)

Standard costing 

64)

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  

65)

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  

66)

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  

67)

________ 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.  

68)

________ 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.  

69)

________ 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.  

70)

________ method(s) is required for tax reporting purposes.  
A)

Variable costing  
B)

Absorption costing  
C)

Throughput costing  
D)

All of these answers are correct.  

71)

________ is a method of inventory costing in which only variable manufacturing costs are included as inventoriable costs. 
A)

Fixed costing 
B)

Variable costing 
C)

Absorption costing 
D)

Mixed costing 

72)

Variable costing regards fixed manufacturing overhead as a(n):  
A)

administrative cost  
B)

inventoriable cost  
C)

period cost  
D)

product cost  

73)

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.  

Answer the following questions using the information below:

Marie's Decorating produces and sells a mantel clock for $100 per unit. In 20X5, 100,000 clocks were produced and 80,000 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 unit

74)

What is the inventoriable cost per unit using variable costing?  
A)

$32  
B)

$35  
C)

$40  
D)

$60  

75)

What is the inventoriable cost per unit using absorption costing?  
A)

$32  
B)

$35  
C)

$60  
D)

$80  

Answer the following questions using the information below:

Gabe's Auto produces and sells an auto part for $30.00 per unit. In 20X5, 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

76)

What is the inventoriable cost per unit using variable costing?  
A)

$14.25  
B)

$15.00  
C)

$18.00  
D)

$21.75  

77)

What is the inventoriable cost per unit using absorption costing?  
A)

$15.00  
B)

$18.00  
C)

$18.75  
D)

$21.75  

78)

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  

79)

The contribution-margin format of the income statement: 
A)

is used with absorption costing 
B)

calculates gross margin 
C)

distinguishes between manufacturing and nonmanufacturing costs 
D)

is used with variable costing 

80)

The gross-margin format of the income statement: 
A)

is used with variable costing 
B)

is used with absorption costing 
C)

calculates contribution margin 
D)

distinguishes variable costs from fixed costs 

81)

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  

82)

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  

83)

________ 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 are correct.  

84)

________ 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 are correct.  

Answer the following questions using the information below:

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 units

85)

What is cost of goods sold per unit using variable costing?  
A)

$20  
B)

$23  
C)

$30  
D)

$45  

86)

What is cost of goods sold using variable costing?  
A)

$35,000  
B)

$40,000  
C)

$47,250  
D)

$54,000  

87)

What is contribution margin using variable costing?  
A)

$96,250  
B)

$91,000  
C)

$104,000  
D)

$110,000  

88)

What is operating income using variable costing?  
A)

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