Deck 15: Measuring and Assigning Costs for Income Statements

Question 1

In a throughput costing income statement, the throughput contribution is calculated as revenues - direct materials costs.

Answer 1

True

Question 2

In absorption costing systems, costs on the income statement are classified by their behaviour.

Answer 2

False

Question 3

Practical capacity is always less than theoretical capacity.

Answer 3

True

Question 4

When units produced are equal to units sold, operating income under absorption costing will equal operating income under variable costing.

Question 5

Absorption costing systems subtract inventoried costs from revenues at the time of production.

Question 6

Throughput costing is a modified form of absorption costing that treats direct labour and variable overhead as period expenses.

Question 7

Theoretical capacity is a supply-based capacity measurement.

Question 8

Variable costing data can often be used for making nonroutine operating decisions.

Question 9

Variable costing income statements include fixed manufacturing overhead as part of the costs of ending inventory.

Question 10

On a variable costing income statement, costs are grouped according to their behaviour.

Question 11

"Cost" and "expense" are two terms for describing the same concept.

Question 12

Budgeted capacity is always greater than normal capacity.

Question 13

Absorption costing income statements typically include "gross margin" as a line item.

Question 14

The Internal Revenue Service requires managers to use practical capacity for tax reporting because it is more stable over time and therefore less easy to manipulate.

Question 15

Throughput costing was an outgrowth of the Theory of Constraints.

Question 16

Absorption costing statements conform to generally accepted accounting principles.

Question 17

Theoretical capacity and practical capacity are demand-based capacity measurements.

Question 18

Variable costing does not conform to GAAP because it does not match manufacturing costs with revenues.

Question 19

Normal capacity and budgeted capacity are demand-based capacity measurements.

Question 20

Synonyms for variable costing include direct costing and marginal costing.

Question 21

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: Month Units Produced Units Sold
1 800 600
2 1,100 800
3 1,200 1,100
4 1,000 1,400
The firm's budgeted fixed overhead is $200,000, and budgeted output is 1,000 units per month. The volume variance, if any, is carried forward month-by-month and closed at the end of the year. When 1,000 units are produced and sold, expected monthly operating income is $40,000.
Compared to using absorption costing, using variable costing will result in operating income for the 4-month period to be:

A)Higher
B)Lower
C)Same
D)Cannot be determined

Question 22

Improved information technology has increased the availability of variable costing and throughput costing income statements.

Question 23

Baylor, Inc. just finished its second year of operations. In the first year it produced 1,000 units and sold 400. The second year resulted in the same production level, but sales were 1,200 units. The variable costing income statements for both years are shown below: Year 1 Year 2
Sales $ 40,000 $120,000
Variable cost of goods sold $22,000 $66,000
Variable selling and administration 800 22,800 2,400 68,400
Contribution margin 17,200 51,600
Fixed overhead 30,000 30,000
Fixed selling and administration 15,000 45,000 15,000 45,000
Operating income $(27,800)$ 6,600
The product cost per unit during year 1 using absorption would be:

A)$67,000
B)$73,000
C)$82,000
D)$85,000

Question 24

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: Month Units Produced Units Sold
1 800 600
2 1,100 800
3 1,200 1,100
4 1,000 1,400
The firm's budgeted fixed overhead is $200,000, and budgeted output is 1,000 units per month. The volume variance, if any, is carried forward month-by-month and closed at the end of the year. When 1,000 units are produced and sold, expected monthly operating income is $40,000.
In which month(s)was variable costing income lower than absorption costing income?

A)4
B)1, 2, and 3
C)2 and 3
D)3 and 4

Question 25

Bella, Inc. has operated for 2 years. During that time it produced 1,000 units in year 1 and 800 in year 2, while sales were 800 units in year 1 and 900 in year 2. Variable production costs were $8 per unit during both years. The absorption costing income statements for these 2 years were: Year 1 Year 2
Sales $16,000 $18,000
Less cost of goods sold:
Beginning inventory $ 0 $ 2,200
Product costs 11,000 9,400
Ending inventory (2,200)8,800 (1,175)10,425
Gross profit 7,200 7,575
Less operating expenses:
Variable 1,200 1,350
Fixed 5,000 6,200 5,000 6,350
Operating income $ 1,000 $ 1,225
Cost of goods sold for year 1 using variable costing would be:

A)$6,400
B)$8,800
C)$8,000
D)$7,600

Question 26

Shipp, Inc. budgets the following costs for a normal monthly volume of 500 units selling for $4,000 each. Manufacturing Nonmanufacturing
Variable $800,000 $1,000,000
Fixed 600,000 400,000
The product cost per unit using variable costing is:

A)$1,600
B)$2,800
C)$2,000
D)$2,400

Question 27

Fixed overhead costs are treated differently under variable costing and throughput costing.

Question 28

Shipp, Inc. budgets the following costs for a normal monthly volume of 500 units selling for $4,000 each. Manufacturing Nonmanufacturing
Variable $800,000 $1,000,000
Fixed 600,000 400,000
The income (loss)using absorption costing when 500 units are produced and 400 units are sold is:

A)$840,000 loss
B)$160,000 income
C)$480,000 income
D)$720,000 loss

Question 29

Bella, Inc. has operated for 2 years. During that time it produced 1,000 units in year 1 and 800 in year 2, while sales were 800 units in year 1 and 900 in year 2. Variable production costs were $8 per unit during both years. The absorption costing income statements for these 2 years were: Year 1 Year 2
Sales $16,000 $18,000
Less cost of goods sold:
Beginning inventory $ 0 $ 2,200
Product costs 11,000 9,400
Ending inventory (2,200)8,800 (1,175)10,425
Gross profit 7,200 7,575
Less operating expenses:
Variable 1,200 1,350
Fixed 5,000 6,200 5,000 6,350
Operating income $ 1,000 $ 1,225
Operating income for year 1 using variable costing would be:

A)$1,600
B)$(2,800)
C)$2,200
D)$400

Question 30

Bella, Inc. has operated for 2 years. During that time it produced 1,000 units in year 1 and 800 in year 2, while sales were 800 units in year 1 and 900 in year 2. Variable production costs were $8 per unit during both years. The absorption costing income statements for these 2 years were: Year 1 Year 2
Sales $16,000 $18,000
Less cost of goods sold:
Beginning inventory $ 0 $ 2,200
Product costs 11,000 9,400
Ending inventory (2,200)8,800 (1,175)10,425
Gross profit 7,200 7,575
Less operating expenses:
Variable 1,200 1,350
Fixed 5,000 6,200 5,000 6,350
Operating income $ 1,000 $ 1,225
Operating income for year 2 using variable costing would be:

A)$1,000
B)$1,600
C)$4,000
D)$1,450

Question 31

Because absorption costing capitalizes fixed manufacturing overhead costs to inventory, managers using it may build up inventories unnecessarily.

Question 32

Shipp, Inc. budgets the following costs for a normal monthly volume of 500 units selling for $4,000 each. Manufacturing Nonmanufacturing
Variable $800,000 $1,000,000
Fixed 600,000 400,000
The product cost per unit using absorption costing is:

A)$1,600
B)$2,800
C)$2,000
D)$2,400

Question 33

Direct materials costs are treated similarly under variable costing and throughput costing.

Question 34

Shipp, Inc. budgets the following costs for a normal monthly volume of 500 units selling for $4,000 each. Manufacturing Nonmanufacturing
Variable $800,000 $1,000,000
Fixed 600,000 400,000
The income (loss)using variable costing when 500 units are produced and 400 units are sold is:

A)$840,000 loss
B)$160,000 income
C)$480,000 income
D)$720,000 loss

Question 35

Throughput costing income statements cannot be used to evaluate management performance.

Question 36

Throughput costing income statements help managers determine the most efficient uses of resources in the short term.

Question 37

JIT systems are incompatible with absorption costing systems.

Question 38

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: Month Units Produced Units Sold
1 800 600
2 1,100 800
3 1,200 1,100
4 1,000 1,400
The firm's budgeted fixed overhead is $200,000, and budgeted output is 1,000 units per month. The volume variance, if any, is carried forward month-by-month and closed at the end of the year. When 1,000 units are produced and sold, expected monthly operating income is $40,000.
In which month(s)was variable costing income higher than absorption costing income?

A)4
B)l, 2, and 3
C)2 and 3
D)3 and 4

Question 39

Bella, Inc. has operated for 2 years. During that time it produced 1,000 units in year 1 and 800 in year 2, while sales were 800 units in year 1 and 900 in year 2. Variable production costs were $8 per unit during both years. The absorption costing income statements for these 2 years were: Year 1 Year 2
Sales $16,000 $18,000
Less cost of goods sold:
Beginning inventory $ 0 $ 2,200
Product costs 11,000 9,400
Ending inventory (2,200)8,800 (1,175)10,425
Gross profit 7,200 7,575
Less operating expenses:
Variable 1,200 1,350
Fixed 5,000 6,200 5,000 6,350
Operating income $ 1,000 $ 1,225
Ending inventory for year 2 using variable costing would be:

A)$2,200
B)$1,100
C)$1,175
D)$800

Question 40

Throughput costing assumes that product costs other than materials tend to be fixed in the short run.

Question 41

Baylor, Inc. just finished its second year of operations. In the first year it produced 1,000 units and sold 400. The second year resulted in the same production level, but sales were 1,200 units. The variable costing income statements for both years are shown below: Year 1 Year 2
Sales $ 40,000 $120,000
Variable cost of goods sold $22,000 $66,000
Variable selling and administration 800 22,800 2,400 68,400
Contribution margin 17,200 51,600
Fixed overhead 30,000 30,000
Fixed selling and administration 15,000 45,000 15,000 45,000
Operating income $(27,800)$ 6,600
The operating income for year 1 using absorption costing would be:

A)$6,000
B)$(9,000)
C)$(9,800)
D)$600

Question 42

During its first year of operations, Kima Corp. experienced the following: Units manufactured 70,000
Units sold 60,000
Product costs:
Variable $10.50/unit
Fixed $315,000
Selling and Administrative:
Variable $1.60/unit
Fixed $140,000
The cost of goods sold under absorption costing would be:

A)$585,000
B)$735,000
C)$945,000
D)$900,000

Question 43

Rubble Enterprises develops an 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 year-end. For the firm's single product the following ending inventory levels have been experienced during the last 7 months: Month Units
December 31 300
January 31 300
February 28 200
March 31 400
April 30 300
May 31 400
June 30 500
In how many months would variable costing income be equal to absorption costing income?

A)0
B)1
C)2
D)3

Question 44

Under which costing method(s)are administrative and selling costs considered period expenses?
I) Absorption costing
II) Throughput costing
III) Variable costing

A)I and II only
B)II and III only
C)I and III only
D)I, II, and III

Question 45

Which costing method matches costs and revenues most appropriately for generally accepted accounting principles?

A)Throughput costing
B)Absorption costing
C)Variable costing
D)Activity-based costing

Question 46

Variable costing income for the period July 1 through September 30 was $400. Inventory data are as follows: Absorption Costing Variable Costing
July 1 $1,600 $1,200
September 30 1,900 1,400
What is the income if absorption costing is used?

A)$300
B)$500
C)$400
D)$600

Question 47

Baylor, Inc. just finished its second year of operations. In the first year it produced 1,000 units and sold 400. The second year resulted in the same production level, but sales were 1,200 units. The variable costing income statements for both years are shown below: Year 1 Year 2
Sales $ 40,000 $120,000
Variable cost of goods sold $22,000 $66,000
Variable selling and administration 800 22,800 2,400 68,400
Contribution margin 17,200 51,600
Fixed overhead 30,000 30,000
Fixed selling and administration 15,000 45,000 15,000 45,000
Operating income $(27,800)$ 6,600
The operating income for year 2 using absorption costing would be:

A)$(9,800)
B)$600
C)$(9,000)
D)$6,000

Question 48

Philpott's operating income using absorption costing is $100. Its inventories using both absorption and variable costing are as follows: Beginning of Year End of Year
Absorption costing $98 $86
Variable costing $76 $60
Under variable costing, operating income would be:

A)$102
B)$94
C)$100
D)$96

Question 49

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

A)I and II only
B)II and III only
C)I and III only
D)I, II, and III

Question 50

Variable production overhead is allocated to inventory when using:

A)Absorption costing and variable costing
B)Absorption costing and throughput costing
C)Variable costing and throughput costing
D)Absorption costing, variable costing, and throughput costing

Question 51

During its first year of operations, Kima Corp. experienced the following: Units manufactured 70,000
Units sold 60,000
Product costs:
Variable $10.50/unit
Fixed $315,000
Selling and Administrative:
Variable $1.60/unit
Fixed $140,000
The amount of variable costs deducted from revenues under the variable costing approach would be:

A)$847,000
B)$831,000
C)$726,000
D)$742,000

Question 52

Rubble Enterprises develops an 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 year-end. For the firm's single product the following ending inventory levels have been experienced during the last 7 months: Month Units
December 31 300
January 31 300
February 28 200
March 31 400
April 30 300
May 31 400
June 30 500
For how many months would variable costing income be higher than absorption?

A)1
B)2
C)3
D)4

Question 53

Baylor, Inc. just finished its second year of operations. In the first year it produced 1,000 units and sold 400. The second year resulted in the same production level, but sales were 1,200 units. The variable costing income statements for both years are shown below: Year 1 Year 2
Sales $ 40,000 $120,000
Variable cost of goods sold $22,000 $66,000
Variable selling and administration 800 22,800 2,400 68,400
Contribution margin 17,200 51,600
Fixed overhead 30,000 30,000
Fixed selling and administration 15,000 45,000 15,000 45,000
Operating income $(27,800)$ 6,600
The ending inventory for year 2 using absorption costing would be:

A)$51,000
B)$34,000
C)$22,000
D)$17,000

Question 54

Rubble Enterprises develops an 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 year-end. For the firm's single product the following ending inventory levels have been experienced during the last 7 months: Month Units
December 31 300
January 31 300
February 28 200
March 31 400
April 30 300
May 31 400
June 30 500
In how many months would variable costing income be lower than absorption costing income?

A)1
B)2
C)3
D)4

Question 55

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:

A)Variable costing
B)Throughput costing
C)Absorption costing
D)Capacity-based costing

Question 56

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

A)I and II only
B)II and III only
C)I and III only
D)I, II, and III

Question 57

General Mtg. Co. budgeted fixed overhead costs of $25,000 per quarter and 1,000 units per quarter in its normal absorption costing system. Any volume variance is carried forward and closed at year end. The company experienced the following activity: Quarter Units Produced Units Sold
1 900 600
2 1,200 1,000
3 1,400 1,200
4 1,000 1,500
The volume variance was favourable in quarter(s)?

A)2, 3, and 4
B)2 and 3
C)3 and 4
D)3

Question 58

During its first year of operations, Kima Corp. experienced the following: Units manufactured 70,000
Units sold 60,000
Product costs:
Variable $10.50/unit
Fixed $315,000
Selling and Administrative:
Variable $1.60/unit
Fixed $140,000
If Kima calculates operating income under the variable costing method as opposed to the absorption costing method, operating income will be:

A)$45,000 lower
B)$270,000 lower
C)$315,000 higher
D)$270,000 higher

Question 59

During its first year of operations, Kima Corp. experienced the following: Units manufactured 70,000
Units sold 60,000
Product costs:
Variable $10.50/unit
Fixed $315,000
Selling and Administrative:
Variable $1.60/unit
Fixed $140,000
The amount of fixed costs deducted from revenues under the absorption costing approach would be:

A)$410,000
B)$455,000
C)$390,000
D)$435,000

Question 60

Total production overhead is treated as a product cost when using:

A)Absorption costing
B)Throughput costing
C)Variable costing
D)Throughput costing and absorption costing

Question 61

General Mtg. Co. budgeted fixed overhead costs of $25,000 per quarter and 1,000 units per quarter in its normal absorption costing system. Any volume variance is carried forward and closed at year end. The company experienced the following activity: Quarter Units Produced Units Sold
1 900 600
2 1,200 1,000
3 1,400 1,200
4 1,000 1,500
The volume variance in quarter 1 was:

A)$2,500 Unfavourable
B)$10,000 Unfavourable
C)$7,500 Favourable
D)$5,000 Favourable

Question 62

Absorption costing:

A)Is used for external reporting purposes
B)Includes variable and fixed period costs in inventory
C)Is the method in which the fixed overhead cost is not included in inventory
D)Treats production costs as expenses in the period in which they are incurred

Question 63

The volume variance is calculated as:

A)Difference between estimated fixed overhead costs and allocated fixed overhead costs
B)Sum of estimated fixed overhead costs and allocated fixed overhead costs
C)Difference between estimated fixed overhead costs and actual fixed overhead costs
D)Difference between actual fixed overhead costs and allocated fixed overhead costs

Question 64

In variable costing:

A)Only variable production costs are considered product costs
B)All non-variable production costs are treated as product costs
C)Direct costs are considered to be period costs
D)All variable costs are considered product costs

Question 65

General Mtg. Co. budgeted fixed overhead costs of $25,000 per quarter and 1,000 units per quarter in its normal absorption costing system. Any volume variance is carried forward and closed at year end. The company experienced the following activity: Quarter Units Produced Units Sold
1 900 600
2 1,200 1,000
3 1,400 1,200
4 1,000 1,500
The volume variance for the year was:

A)-0-
B)Favourable
C)Unfavourable
D)Cannot be determined

Question 66

Under the variable costing method, fixed production overhead is:

A)Included in inventory
B)Expensed in the period incurred
C)Expensed as a product cost
D)Expensed when the inventory is sold

Question 67

The capacity level which assumes continuous, uninterrupted production 365 days per year is called:

A)Budgeted capacity
B)Normal capacity
C)Practical capacity
D)Theoretical capacity

Question 68

Supply-based capacity levels include:
I) Normal capacity
II) Practical capacity
III) Theoretical capacity

A)I and II only
B)I and III only
C)II and III only
D)I, II, and III

Question 69

The difference between practical capacity and theoretical capacity is:

A)Budgeted fixed costs
B)Expected downtimes
C)Excess capacity
D)Nothing, because the two terms have the same meaning

Question 70

(CGA)Which of the following statements is true about the variable cost method?

A)It is always inappropriate for performing a profitability analysis
B)It is useful for determining the price of a product for a special order
C)It is always useful when fixing the price for a long period
D)It is helpful for performing target costing

Question 71

Which of the following are demand-based capacity levels?
I) Normal capacity
II) Budgeted capacity
III) Practical capacity

A)I and II only
B)II and III only
C)I and III only
D)I, II, and III

Question 72

Absorption costing will produce a larger operating income than variable costing if:

A)Fixed production overhead increases
B)Fixed production overhead decreases
C)Units produced exceed units sold
D)Units sold exceed units produced

Question 73

What type of capacity is the upper capacity limit that takes into account the organization's regularly scheduled times for production?

A)Tax capacity
B)Practical capacity
C)Scheduled capacity
D)Normal capacity

Question 74

Under generally accepted accounting principles, absorption costing is used for: Job Costing Process Costing

A)Yes Yes
B)No No
C)No Yes
D)Yes No

Question 75

For income tax accounting, the Canada Revenue Agency requires the use of:

A)Normal capacity
B)Budgeted capacity
C)Theoretical capacity
D)Practical capacity

Question 76

Practical capacity is estimated based on:

A)Engineering studies and labour use patterns
B)The behaviour of fixed costs
C)The behaviour of variable costs
D)Demand patterns

Question 77

When calculating an estimated fixed production cost overhead allocation rate, accountants choose the:

A)Allocation base to use as the denominator
B)Allocation base to use as the numerator
C)Allocation base to use as the rate
D)Allocation base that minimizes total fixed production overhead

Question 78

Exter Manufacturing experienced the following activity over the last four years: Year Units Produced Units Sold
1 800 600
2 1,100 800
3 1,200 1,100
4 1,000 1,400
The firm's estimated fixed overhead allocation rate was unchanged over the 4 years at $200 per unit, based on budgeted fixed overhead of $200,000 and 1,000 units of output. The volume variance is closed to the cost of goods sold each year. Exter maintains an absorption costing system.
The volume variance for Year 2 is:

A)$40,000 Unfavourable
B)$60,000 Favourable
C)$100,000 Unfavourable
D)$20,000 Favourable

Question 79

(CMA)The cost of the 1,000 units of finished goods ending inventory under absorption costing is:

A)$150,000
B)$125,000
C)$112,5000
C)$62,500

Question 80

(CGA)How does the accounting treatment of selling and administration costs differ between absorption and variable costing if more units are produced than are sold?

A)The variable portion is added to the cost of ending inventory based on a pro rata portion of units produced to those sold
B)The fixed portion is added to the costs of ending inventory based on a pro rata portion of units produced to those sold
C)There is no difference in the treatment
D)Both fixed and variable portions are added to the cost of ending inventory based on a pro rata portion of units produced to those sold