Exam 9: Inventory Costing and Capacity Analysis

Galliart Company has two identical divisions, East and West. Their sales, production volume, and fixed manufacturing costs have been the same for the last five years. The amounts for each division were as follows: East Division uses absorption costing and West Division uses variable costing. Both use FIFO inventory methods. Variable manufacturing costs are $5 per unit. Selling and administrative expenses were identical for each division. There were no inventories at the beginning of 2014. Which division reports the highest income each year? Explain.

One possible means of determining the difference between operating incomes for absorption costing and variable costing is by ________.

Which of the following is a reason for companies adopting variable costing for internal reporting purposes?

The amount of fixed manufacturing costs inventoried depends on two factors: the number of units in ending inventory and the rate at which fixed manufacturing overhead costs are allocated to each unit.

To achieve consistency in reporting, a company must use the same capacity-level concept for internal reporting and control as it uses for external reporting and tax reporting.

Which of the following best describes practical capacity?

The only real challenge in planning and controlling capacity costs is with the denominator as the numerator of a budgeted fixed manufacturing cost allocation rate is rarely the issue.

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

Banta Corporation is in the business of selling computers. The following expenses were incurred in March 2017: What will be the breakeven point if variable costing is used? (Round your final answer up to the next whole unit.)

In general, if inventory increases during an accounting period, ________.

Which of the following statements is true of gross-margin format of the income statement?

Which of the following costs will be treated as period costs under absorption costing?

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

________ is the continuing reduction in the demand for a company's products that occurs when competitor prices are not met.

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

The gross-margin format is used for ________.

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 changes in the quantity of units actually manufactured.

Swan Textiles Inc. produces and sells a decorative pillow for $98.00 per unit. In the first month of operation, 2,200 units were produced and 1,800 units were sold. Actual fixed costs are the same as the amount budgeted for the month. Other information for the month includes: What is the operating income using variable costing?

In ________, fixed manufacturing costs are included as inventoriable costs.