Question 1

Answer the following question using the information below:
Jason Novelty Company produces a specialty item. Management has provided the following information:

What is the total throughput contribution?
A) $3,432,000
B) $3,360,000
C) $4,620,000
D) $2,520,000

Accepted Answer

Selling price per unit is $41 and the direct material costs is $8. Under throughput costing, contribution is calculated by deducting direct materials cost from the sale amount, the throughput contribution, in this case, is $33. Total throughput contribution for 140,000 units sold is [140,000 × $33 = $4,620,000]

Question 2

Throughput is a variation of which of the following systems?
A) absorption costing
B) variable costing
C) job costing
D) standard costing

Accepted Answer

Throughput is a variation of variable costing, which focuses on the direct costs associated with producing a product or service. It does not allocate indirect costs, such as overhead, to products or services.

Question 3

Advocates of throughput costing argue that ________.
A) fixed manufacturing costs must be included as inventoriable costs and provide less incentive than absorption costing to build-up inventory to increase profits
B) direct manufacturing labor is relatively fixed and therefore should not be included in inventory costs
C) direct materials costs are a cost of the period and therefore should not be included in inventoriable costs
D) including only direct materials as inventoriable costs provides less incentive than absorption costing to produce a build-up of inventory merely to increase profits

Accepted Answer

Advocates of throughput costing argue that including only direct materials as inventoriable costs provides less incentive than absorption costing to produce a build-up of inventory merely to increase profits. They believe that fixed manufacturing costs should not be included as inventoriable costs and that direct manufacturing labor is a variable cost that should be included in inventory costs. Additionally, they argue that direct materials costs are a cost of the period and should not be included in inventory costs.

Question 4

Answer the following question using the information below:
Jason Novelty Company produces a specialty item. Management has provided the following information:

What is the cost per unit if throughput costing is used?
A) $25
B) $13
C) $19
D) $9

Accepted Answer

Direct material costs of $9

Question 5

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

Accepted Answer

Variable costing only considers variable costs and separates them from fixed costs. However, some costs may have elements of both fixed and variable costs, making it challenging to classify them properly. Therefore, companies may face difficulties while distinguishing between fixed and variable costs.

Question 6

Throughput contribution equals ________.
A) variable costs minus fixed costs
B) revenues minus all direct labor costs
C) revenues minus all direct material cost of goods sold
D) revenues minus manufacturing overhead

Accepted Answer

Throughput contribution is the revenue generated minus the direct material cost of goods sold, which excludes all other variable and fixed costs.

Question 7

If 800 units are produced and 1,200 units are sold, the costing method which will result in the greatest operating income is ________.
A) throughput costing
B) variable costing
C) absorption costing
D) period costing

Accepted Answer

Throughput costing only considers direct material costs as product costs, leading to higher operating income when inventory decreases, as in this case.

Question 8

To reduce the undesirable incentives to build up inventories management can institute planning, budgeting, and other controls.

Accepted Answer

Planning, budgeting, and other controls can help management ensure that inventories are kept at appropriate levels and not excessively built up. This can reduce the negative incentives associated with over-building inventories, such as the costs of storage and obsolescence, as well as the opportunity costs of tying up working capital in inventory that could be used for other purposes.

Question 9

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) except direct labor no other costs are truly variable in output

Accepted Answer

Advocates of throughput costing believe that fixed manufacturing costs are related to the capacity to produce and not the actual production of specific units. Therefore, they argue that these costs should not be included in inventory and instead be treated as period expenses. This approach helps in determining the true profitability of an enterprise by focusing on the contribution margin per unit and the throughput of the system. The other options are not consistent with the tenets of throughput costing.

Question 10

Assume a manufacturing company that has started production in the current year. Which of the following would result in the highest profit being reported if the company has 1,000 units of ending inventory?
A) throughput costing
B) variable costing
C) absorption costing
D) standard costing

Accepted Answer

Absorption costing includes all manufacturing costs (direct materials, direct labor, and both variable and fixed manufacturing overhead) in the cost of a product. This method results in higher inventory values and, when inventory levels increase, leads to higher reported profits because some of the fixed manufacturing overhead costs are allocated to the ending inventory and not expensed in the current period.

Question 11

Evaluating performance of managers over a long period, say over three-to five-years, helps to reduce undesirable buildup of inventories.

Accepted Answer

Evaluating performance of managers over a long period can help in identifying their strengths and weaknesses, and enable them to take necessary actions to reduce inventory buildup. This is because multi-year evaluations provide a better understanding of trends and patterns, which can be used to develop effective strategies to manage inventory levels.

Question 12

Glossier Images Inc., produces decorative statues. Management has provided the following information:

What is the total throughput contribution?
A) $2,100,600
B) $1,233,750
C) $1,361,500
D) $1,029,000

Accepted Answer

Throughput contribution = 35,000 statues × ($46 - $7.10) = $1,361,500

Question 13

Explain three methods under absorption costing that managers can use to improve operating income.

Accepted Answer

The answer of Explain three methods under absorption costing that...

Question 14

Absorption costing helps managers to artificially inflate profits by encouraging the production of products that absorb the highest amount of fixed manufacturing costs.

Accepted Answer

Absorption costing allocates fixed manufacturing costs to each unit of product, resulting in a higher cost per unit. This means that products with higher production volumes will absorb more fixed costs and result in higher profits, even if they may not be the most profitable products overall. This can create an incentive for managers to produce more of these high-absorption products, leading to an artificial inflation of profits.

Question 15

Glossier Images Inc., produces decorative statues. Management has provided the following information:

What is the cost per statue if throughput costing is used?
A) $21.75
B) $16.95
C) $11.10
D) $7.50

Accepted Answer

Equal to direct material costs of $7.50

Question 16

Kaiser Company just hired its fourth production manager in three years. All three previous managers had quit because they could not get the company above the break-even point, even though sales had increased somewhat each year. The company was operating at about 60 % of plant capacity. The flatware industry was growing, so increased sales were not out of the question.
I. R. Thinking took the job as manager of the production division with a very attractive salary package. After interviewing for the position, he proposed a salary and bonus package that would give him a very small salary but a large bonus if he took the operating income (using absorption costing) above the breakeven point during his very first year.
Required:
What do you think Mr. Thinking had in mind for increasing the company's operating income?

Accepted Answer

The answer of Kaiser Company just hired its fourth production...

Question 17

Absorption costing is the required inventory method for external financial reporting in most countries.

Accepted Answer

Absorption costing is generally used for external financial reporting as it includes all manufacturing costs (direct and indirect) in the cost of a product, providing a more accurate representation of the true cost of production. However, some countries may allow or even require other inventory methods like variable costing or direct costing.

Question 18

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

Accepted Answer

Throughput costing inventories only the direct materials costs, making it the method that results in the least amount of costs being inventoried compared to the other methods listed.

Question 19

Briefly explain why many companies use absorption costing for external reporting as well as internal accounting.

Accepted Answer

The answer of Briefly explain why many companies use absorption...

Question 20

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) job costing

Accepted Answer

The answer of If 1,000 units are produced and only...

Quiz 9: Inventory Costing and Capacity Analysis

Answer the following question using the information below: Jason Novelty Company produces a specialty item. Management has provided the following information: What is the total throughput contribution?

Throughput is a variation of which of the following systems?

Advocates of throughput costing argue that ________.

Answer the following question using the information below: Jason Novelty Company produces a specialty item. Management has provided the following information: What is the cost per unit if throughput costing is used?

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

Throughput contribution equals ________.

If 800 units are produced and 1,200 units are sold, the costing method which will result in the greatest operating income is ________.

To reduce the undesirable incentives to build up inventories management can institute planning, budgeting, and other controls.

Advocates of throughput costing maintain that ________.

Assume a manufacturing company that has started production in the current year. Which of the following would result in the highest profit being reported if the company has 1,000 units of ending inventory?

Evaluating performance of managers over a long period, say over three-to five-years, helps to reduce undesirable buildup of inventories.

Glossier Images Inc., produces decorative statues. Management has provided the following information: What is the total throughput contribution?

Explain three methods under absorption costing that managers can use to improve operating income.

Absorption costing helps managers to artificially inflate profits by encouraging the production of products that absorb the highest amount of fixed manufacturing costs.

Glossier Images Inc., produces decorative statues. Management has provided the following information: What is the cost per statue if throughput costing is used?

Absorption costing is the required inventory method for external financial reporting in most countries.

Which of the following inventory costing methods results in the least amount of costs being inventoried?

Briefly explain why many companies use absorption costing for external reporting as well as internal accounting.

If 1,000 units are produced and only 700 units are sold, ________ results in the greatest amount of expense reported on the income statement.