Question 1

Which of the following are considered product costs in a throughput costing income statement?
I. Direct materials
II. Direct labour
III. Variable overhead
A)I and II only
B)I only
C)II and III only
D)I, II, and III

Accepted Answer

In throughput costing, only direct materials are considered product costs. Direct labor and variable overhead are treated as period costs.

Question 2

Which of the following types of capacity can result in an unrealistically small fixed overhead allocation rate if used as an allocation base?
A)Normal capacity
B)Theoretical capacity
C)Budgeted capacity
D)Practical capacity

Accepted Answer

Theoretical capacity is based on the maximum possible output assuming perfect conditions and no interruptions, which is not a realistic basis for allocating fixed overhead costs. This can lead to an unrealistically small fixed overhead allocation rate and distort the true cost of production. Normal capacity, budgeted capacity, and practical capacity are more realistic and commonly used allocation bases.

Question 3

In a throughput costing system, all overhead costs are treated as:
I. Period costs
II. Fixed costs
III. Deductions from throughput contribution
A)I and II only
B)II and III only
C)I and III only
D)I, II, and III

Accepted Answer

The answer of In a throughput costing system, all overhead...

Question 4

Which costing method(s)conform to GAAP? Absorption Variable Throughput
A)Yes No No
B)Yes No Yes
C)No Yes Yes
D)No No Yes

Accepted Answer

Absorption costing is the only method that conforms to GAAP because it includes all manufacturing costs (fixed and variable) in product costs.

Question 5

PFA Corporation uses a throughput costing system and reported the following information for its first month of operations: Units produced 140
Units sold 120
Material cost per unit produced $3.50
Conversion cost per unit produced $6.50
Fixed period costs per unit produced $6.00
Variable period costs per unit produced $4.00
Selling price per unit $25.00
Under which of the following costing methods would PFA report the highest operating income?
A)Absorption costing
B)Variable costing
C)Throughput costing
D)Income will be equal under all three methods

Accepted Answer

Throughput costing is a hybrid costing system that combines elements of both absorption costing and variable costing. Under throughput costing, fixed manufacturing costs are treated as period costs and are expensed in the period in which they are incurred. This results in a higher operating income than under absorption costing, which capitalizes fixed manufacturing costs as inventory and expenses them over the life of the product.

Question 6

PFA Corporation uses a throughput costing system and reported the following information for its first month of operations: Units produced 140
Units sold 120
Material cost per unit produced $3.50
Conversion cost per unit produced $6.50
Fixed period costs per unit produced $6.00
Variable period costs per unit produced $4.00
Selling price per unit $25.00
PFA's throughput cost of goods sold was:
A)$420
B)$490
C)$1,200
D)$1,400

Accepted Answer

Throughput cost of goods sold = Units sold x (Material cost per unit + Conversion cost per unit + Fixed period costs per unit + Variable period costs per unit)= 120 x ($3.50 + $6.50 + $6.00 + $4.00)= 120 x $20.00= $2,400

Question 7

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
A)P S E
B)S E P
C)E P S
D)E S P

Accepted Answer

Absorption costing is primarily used for external reporting as it is required by GAAP and IFRS. Variable costing is most suitable for performance evaluations as it separates fixed and variable costs, helping in assessing managerial performance. Throughput costing is appropriate for short-term capacity decisions as it emphasizes on maximizing production without considering fixed costs. Therefore, the best use for absorption costing is external reporting, for variable costing, it is performance evaluations, and for throughput costing, it is short-term capacity decisions. Choice C is the only option that correctly identifies the best use for each costing method.

Question 8

PFA Corporation uses a throughput costing system and reported the following information for its first month of operations: Units produced 140
Units sold 120
Material cost per unit produced $3.50
Conversion cost per unit produced $6.50
Fixed period costs per unit produced $6.00
Variable period costs per unit produced $4.00
Selling price per unit $25.00
Total period costs reported on PFA's throughput costing income statement were:
A)$1,400
B)$1,200
C)$2,310
D)$1,980

Accepted Answer

Total period costs = Fixed period costs per unit produced * Units produced + Variable period costs per unit produced * Units produced= $6.00 * 140 + $4.00 * 140= $840 + $560= $1,400

Question 9

An estimated fixed overhead allocation rate:
A)Is unrealistically large if determined using theoretical capacity
B)Can be considered an estimated cost of capacity per unit
C)Is usually based on theoretical capacity
D)Does not provide information about opportunity costs of unused capacity

Accepted Answer

An estimated fixed overhead allocation rate can be considered an estimated cost of capacity per unit, as it is used to allocate fixed overhead costs to units produced based on an estimate of the total capacity of the production process. Option A is incorrect because an estimated fixed overhead allocation rate determined using theoretical capacity may not be unrealistically large, as it depends on the accuracy of the estimate. Option C is partially correct as such rates are usually based on theoretical capacity, but they can also be based on practical capacity or expected capacity. Option D is incorrect because an estimated fixed overhead allocation rate provides information about the opportunity costs of unused capacity, as it reflects the amount of fixed overhead costs incurred regardless of the level of production.

Question 10

Throughput costing was developed in the 1980s as part of:
A)The theory of constraints
B)Zero-based budgeting
C)Activity-based costing
D)Variable costing income statements

Accepted Answer

Throughput costing is a component of the theory of constraints, which is a management philosophy developed by Dr. Eliyahu Goldratt in the 1980s. It focuses on identifying the key constraints or bottlenecks that limit a company's ability to achieve its goals, and then managing those constraints to improve overall performance. Throughput costing is a technique used to evaluate the impact of changes in production and sales volumes on a company's profitability under conditions of limited capacity.

Question 11

Throughput costing can be used for:
I. Internal reporting
II. External reporting
III. Income tax reporting
A)I only
B)II only
C)III only
D)I, II, and III

Accepted Answer

Throughput costing is primarily used for internal reporting purposes to assess the efficiency of production process and identify areas for improvement. While it may have some relevance for external reporting, it is not a generally accepted accounting principle and may not be suitable for income tax reporting. Therefore, option B and C are not correct choices.

Question 12

PFA Corporation uses a throughput costing system and reported the following information for its first month of operations: Units produced 140
Units sold 120
Material cost per unit produced $3.50
Conversion cost per unit produced $6.50
Fixed period costs per unit produced $6.00
Variable period costs per unit produced $4.00
Selling price per unit $25.00
PFA's throughput costing operating income will be:
A)$270
B)$600
C)$400
D)None of the above

Accepted Answer

Throughput costing operating income = (Units produced * Throughput cost per unit) - (Units sold * Selling price per unit)Throughput cost per unit = Material cost per unit produced + Conversion cost per unit produced + Fixed period costs per unit produced + Variable period costs per unit producedThroughput cost per unit = $3.50 + $6.50 + $6.00 + $4.00 = $20.00Throughput costing operating income = (140 * $20.00) - (120 * $25.00) = $270

Question 13

PFA Corporation uses a throughput costing system and reported the following information for its first month of operations: Units produced 140
Units sold 120
Material cost per unit produced $3.50
Conversion cost per unit produced $6.50
Fixed period costs per unit produced $6.00
Variable period costs per unit produced $4.00
Selling price per unit $25.00
PFA's total throughput product cost incurred was:
A)$490
B)$1,400
C)$420
D)$1,200

Accepted Answer

Throughput product cost = (Units produced x Material cost per unit produced) + (Units produced x Conversion cost per unit produced)= (140 x $3.50) + (140 x $6.50)= $490 + $910= $1,400

Question 14

Throughput contribution is computed as:
A)Sales - variable costs
B)Sales - cost of direct materials purchased
C)Number of units sold × (price per unit - material cost per unit)
D)Sales - period costs

Accepted Answer

Throughput contribution is the revenue generated by a business minus the cost of direct materials. Option C represents this calculation by multiplying the number of units sold by the difference between the price per unit and material cost per unit. This calculation captures the revenue generated from sales while also deducting the direct materials cost and is the most accurate representation of the throughput contribution. Options A and D do not accurately capture the materials cost component and option B only captures the cost of direct materials purchased, not the revenue generated from sales.

Question 15

PFA Corporation uses a throughput costing system and reported the following information for its first month of operations: Units produced 140
Units sold 120
Material cost per unit produced $3.50
Conversion cost per unit produced $6.50
Fixed period costs per unit produced $6.00
Variable period costs per unit produced $4.00
Selling price per unit $25.00
PFA's throughput contribution was:
A)$3,000
B)$3,500
C)$2,580
D)$1,800

Accepted Answer

The answer of PFA Corporation uses a throughput costing system...

Question 16

In throughput costing, direct labour and variable overhead are treated as:
A)Measures of capacity
B)Fixed costs
C)Period costs
D)Product costs

Accepted Answer

The answer of In throughput costing, direct labour and variable...

Question 17

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 not yet known
III. Only CRA requires volume variances in the calculation of income taxes
A)I only
B)II only
C)I and II only
D)I, II, and III

Accepted Answer

Volume variances are calculated to account for the difference between actual costs and budgeted costs due to changes in the level of activity. Estimates are used for allocation rates so that costs can be allocated when actual costs are not yet known.

Question 18

PFA Corporation uses a throughput costing system and reported the following information for its first month of operations: Units produced 140
Units sold 120
Material cost per unit produced $3.50
Conversion cost per unit produced $6.50
Fixed period costs per unit produced $6.00
Variable period costs per unit produced $4.00
Selling price per unit $25.00
PFA's throughput ending inventory was:
A)$70
B)$200
C)$0
D)$490

Accepted Answer

Throughput costing only considers direct material costs for inventory valuation. Ending inventory is 20 units (140 produced - 120 sold) at $3.50 material cost per unit, totaling $70.

Question 19

Under throughput costing, inventory is valued using
A)Direct materials costs only
B)Prime costs only
C)Variable costs only
D)Conversion costs only

Accepted Answer

The answer of Under throughput costing, inventory is valued using
A)Direct...

Question 20

Throughput costing is a modified form of:
A)Variable costing
B)Full costing
C)Absorption costing
D)Job costing

Accepted Answer

Throughput costing is a modified form of variable costing, where only variable manufacturing costs are considered as product costs, and fixed manufacturing overhead costs are treated as period costs. This approach focuses on maximizing throughput or the rate at which the company generates money through sales, rather than minimizing costs. Full costing and absorption costing consider both variable and fixed manufacturing overhead costs as product costs, while job costing is a method of assigning costs to specific jobs or projects.

Quiz 15: Measuring and Assigning Costs for Income Statements

Which of the following are considered product costs in a throughput costing income statement? I. Direct materials II. Direct labour III. Variable overhead

Which of the following types of capacity can result in an unrealistically small fixed overhead allocation rate if used as an allocation base?

In a throughput costing system, all overhead costs are treated as: I. Period costs II. Fixed costs III. Deductions from throughput contribution

Which costing method(s) conform to GAAP? Absorption Variable Throughput

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

An estimated fixed overhead allocation rate:

Throughput costing was developed in the 1980s as part of:

Throughput costing can be used for: I. Internal reporting II. External reporting III. Income tax reporting

Throughput contribution is computed as:

In throughput costing, direct labour and variable overhead are treated as:

Under throughput costing, inventory is valued using

Throughput costing is a modified form of: