Deck 9: Inventory Costing and Capacity Analysis

Question 1

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

Answer 1

C

Question 2

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

Answer 2

True

Question 3

Answer the following questions using the information below:
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:

What is the inventoriable cost per unit using variable costing?

A)$28.50
B)$30.00
C)$36.00
D)$43.50

Answer 3

B

Question 4

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.

Question 5

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

A)Variable costing
B)Absorption costing
C)Throughput costing
D)All of these answers are correct.

Question 6

________ 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

Question 7

________ 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 costing
B)Mixed costing
C)Absorption costing
D)Standard costing

Question 8

Answer the following questions using the information below:
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:

What is the inventoriable cost per unit using variable costing?

A)$32
B)$35
C)$40
D)$60

Question 9

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.

Question 10

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

A)administrative cost
B)inventoriable cost
C)period cost
D)product cost

Question 11

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

Question 12

Answer the following questions using the information below:
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:

What is the inventoriable cost per unit using absorption costing?

A)$32
B)$35
C)$60
D)$80

Question 13

Answer the following questions using the information below:
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:

What is the inventoriable cost per unit using absorption costing?

A)$30.00
B)$36.00
C)$37.50
D)$43.50

Question 14

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

Question 15

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

Question 16

Absorption costing "absorbs" only fixed manufacturing costs.

Question 17

________ 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.

Question 18

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.

Question 19

________ 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.

Question 20

________ 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.

Question 21

________ 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.

Question 22

Answer the following questions using the information below:
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:

What is gross margin when using absorption costing?

A)$95,000
B)$109,500
C)$154,500
D)$49,500

Question 23

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

Question 24

________ 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.

Question 25

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

Question 26

Answer the following questions using the information below:
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:

What is operating income when using absorption costing?

A)$8,000
B)$33,000
C)($23,500)
D)$37,500

Question 27

An favorable production-volume variance occurs when:

A)the denominator level exceeds production
B)production exceeds the denominator level
C)production exceeds unit sales
D)unit sales exceed production

Question 28

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

Question 29

Answer the following questions using the information below:
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:

What is cost of goods sold per unit when using absorption costing?

A)$38
B)$40
C)$58
D)$64

Question 30

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

Question 31

For 2011, Nichols, Inc., had sales of 150,000 units and production of 200,000 units. Other information for the year included:
Required:
a. Compute the ending finished goods inventory under both absorption and variable costing.
b. Compute the cost of goods sold under both absorption and variable costing.

Question 32

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:

What is operating income using variable costing?

A)$52,500
B)$78,750
C)$65,750
D)$47,000

Question 33

Variable costing includes all variable costsboth manufacturing and nonmanufacturingin inventory.

Question 34

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.

Question 35

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:

What is cost of goods sold using variable costing?

A)$35,000
B)$40,000
C)$47,250
D)$54,000

Question 36

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

Question 37

Under absorption costing, all variable manufacturing costs and all fixed manufacturing costs are included as inventoriable costs.

Question 38

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:

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

A)$20
B)$23
C)$30
D)$45

Question 39

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:

What is contribution margin using variable costing?

A)$96,250
B)$91,000
C)$104,000
D)$110,000

Question 40

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

Question 41

Answer the following questions using the information below:
Stiller Corporation incurred fixed manufacturing costs of $12,000 during 2011. Other information for 2011 includes:
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.
Fixed manufacturing costs expensed on the income statement (excluding adjustments for variances)total:

A)$7,200
B)$9,600
C)$12,000
D)0

Question 42

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

Question 43

Answer the following questions using the information below:
Stiller Corporation incurred fixed manufacturing costs of $12,000 during 2011. Other information for 2011 includes:
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.
The production-volume variance is:

A)$4,000
B)$3,000
C)$4,800
D)0

Question 44

Answer the following questions using the information below:
Veach Corporation incurred fixed manufacturing costs of $6,000 during 2011. Other information for 2011 includes:
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.
The production-volume variance totals:

A)$2,000
B)$1,500
C)$2,400
D)0

Question 45

Heston Company has the following information for the current year: What is the difference between operating incomes under absorption costing and variable costing?

A)$140,000
B)$100,000
C)$80,000
D)$10,000

Question 46

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

Question 47

Answer the following questions using the information below:
Veach Corporation incurred fixed manufacturing costs of $6,000 during 2011. Other information for 2011 includes:
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.
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

Question 48

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

Question 49

Answer the following questions using the information below:
Veach Corporation incurred fixed manufacturing costs of $6,000 during 2011. Other information for 2011 includes:
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.
Fixed manufacturing costs expensed on the income statement (excluding adjustments for variances)total:

A)$3,600
B)$4,800
C)$6,000
D)0

Question 50

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.

Question 51

Answer the following questions using the information below:
Veach Corporation incurred fixed manufacturing costs of $6,000 during 2011. Other information for 2011 includes:
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.
Fixed manufacturing costs included in ending inventory total:

A)$1,200
B)$1,500
C)$900
D)0

Question 52

The following information pertains to Brian Stone Corporation: What is the difference between operating incomes under absorption costing and variable costing?

A)$750
B)$7,500
C)$15,000
D)$30,750

Question 53

Answer the following questions using the information below:
Stiller Corporation incurred fixed manufacturing costs of $12,000 during 2011. Other information for 2011 includes:
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.
Fixed manufacturing costs included in ending inventory total:

A)$2,400
B)$3,000
C)$1,800
D)0

Question 54

Answer the following questions using the information below:
Tunney Corporation incurred fixed manufacturing costs of $7,200 during 2011. Other information for 2011 includes:
The fixed manufacturing cost rate is based on the budgeted denominator level. Manufacturing variances are closed to cost of goods sold.
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

Question 55

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

Question 56

Answer the following questions using the information below:
Tunney Corporation incurred fixed manufacturing costs of $7,200 during 2011. Other information for 2011 includes:
The fixed manufacturing cost rate is based on the budgeted denominator level. Manufacturing variances are closed to cost of goods sold.
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

Question 57

Answer the following questions using the information below:
Stiller Corporation incurred fixed manufacturing costs of $12,000 during 2011. Other information for 2011 includes:
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.
Operating income using absorption costing will be ________ than operating income if using variable costing.

A)$4,800 higher
B)$4,800 lower
C)$1,800 higher
D)$7,200 lower

Question 58

Answer the following questions using the information below:
Tunney Corporation incurred fixed manufacturing costs of $7,200 during 2011. Other information for 2011 includes:
The fixed manufacturing cost rate is based on the budgeted denominator level. Manufacturing variances are closed to cost of goods sold.
Under absorption costing, the production-volume variance is:

A)$450
B)$1,350
C)$1,800
D)0

Question 59

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.

Question 60

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.

Question 61

Johnson Realty bought a 2,000-acre island for $10,000,000 and divided it into 200 equal size lots.
The average selling price was $160,000 per lot during 20X5 when 50 lots were sold.
During 20X6, the company bought another 2,000-acre island and developed it exactly the same way. Lot sales in 20X6 totaled 300 with an average selling price of $160,000. All costs were the same as in 20X5.
Required:
Prepare income statements for both years using both absorption and variable costing methods.

Question 62

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.

Question 63

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

Question 64

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

Question 65

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

Question 66

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

Question 67

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

Question 68

In variable costing, all nonmanufacturing costs are subtracted from contribution margin.

Question 69

Ireland Corporation planned to be in operation for three years.
Required:
a. Prepare an income statement for each year using absorption costing.
b. Prepare an income statement for each year using variable costing.

Question 70

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

Question 71

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

Question 72

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:
Required:
a. Prepare an income statement using absorption costing.
b. Prepare an income statement using variable costing.

Question 73

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

Question 74

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

Question 75

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

Question 76

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

Question 77

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.

Question 78

Jarvis Golf Company sells a special putter for $20 each. In March, it sold 28,000 putters while manufacturing 30,000. There was no beginning inventory on March 1. Production information for March was:
Required:
a. Compute the cost per unit under both absorption and variable costing.
b. Compute the ending inventories under both absorption and variable costing.
c. Compute operating income under both absorption and variable costing.

Question 79

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

Question 80

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 sold
B)changes in the quantity of units produced
C)changes in ending inventory
D)changes in sales price per unit