Question 1

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

Accepted Answer

A) Downward demand spiral 
B) Theoretical capacity 
C) Normal capacity 
D) Practical capacity 
A) Downward demand spiral 
B) Theoretical capacity 
C) Normal capacity 
D) Practical capacity

Question 2

Unused capacity is not considered wasted resources because capacity has to be purchased in "large chunks" to accommodate future needs, NOT just the needs of the current period.

Accepted Answer

A) True 
 B)False

Question 3

Capacity costs:

Accepted Answer

A) are difficult to estimate 
B) don't provide a useful planning tool for nonmanufacturing firms 
C) cannot be used with activity-based costing 
D) All of these answers are correct. 
A) are difficult to estimate 
B) don't provide a useful planning tool for nonmanufacturing firms 
C) cannot be used with activity-based costing 
D) All of these answers are correct.

Question 4

Throughput costing results in a higher amount of manufacturing costs being placed in inventory than either variable or absorption costing.

Accepted Answer

A) True 
 B)False

Question 5

An favorable production-volume variance occurs when:

Accepted Answer

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

Question 6

Fixed manufacturing cost per unit will be the same no matter what capacity concept is used.

Accepted Answer

A) True 
 B)False

Question 7

Using master-budget capacity to set selling prices:

Accepted Answer

A) avoids the recalculation of unit costs when expected demand levels change 
B) spreads fixed costs over available capacity 
C) can result in a downward demand spiral 
D) uses the perspective of long-run product pricing 
A) avoids the recalculation of unit costs when expected demand levels change 
B) spreads fixed costs over available capacity 
C) can result in a downward demand spiral 
D) uses the perspective of long-run product pricing

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Discuss the three methods to dispose of production volume variance.

Accepted Answer

1) Adjusted allocation-rate approach - T

Question 10

Wallace's Wrench Company manufactures socket wrenches.
   Required:
a. What is the theoretical fixed manufacturing overhead rate per wrench?
b. What is the practical fixed manufacturing overhead rate per wrench?
c. What is the normal fixed manufacturing overhead rate per wrench?
d. What is the master-budget fixed manufacturing overhead rate per wrench?

Accepted Answer

a. Theoretical overhead rate = $336,600

Question 11

Variable and absorption costing may be combined with all costing systems EXCEPT:

Accepted Answer

A) mixed costing 
B) actual costing 
C) normal costing 
D) standard costing 
A) mixed costing 
B) actual costing 
C) normal costing 
D) standard costing

Question 12

How does the capacity level chosen to compute the budgeted fixed overhead cost rate affect the production-volume variance?

Accepted Answer

The chosen capacity level is directly re

Question 13

________ are subtracted from sales to calculate gross margin.

Accepted Answer

A) Variable manufacturing costs 
B) Variable selling and administrative costs 
C) Fixed manufacturing costs 
D) Both A and C are correct. 
A) Variable manufacturing costs 
B) Variable selling and administrative costs 
C) Fixed manufacturing costs 
D) Both A and C are correct.

Question 14

Theoretical capacity allows for:

Accepted Answer

A) preventive machine maintenance 
B) interruptions due to uncontrollable power failures 
C) rework of the expected number of defective units 
D) None of these answers is correct. 
A) preventive machine maintenance 
B) interruptions due to uncontrollable power failures 
C) rework of the expected number of defective units 
D) None of these answers is correct.

Question 15

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.

Accepted Answer

The answer of Jarvis Golf Company sells a special putter...

Question 16

________ is (are)based on the demand for the output of the plant.

Accepted Answer

A) Practical capacity 
B) Master-budget capacity utilization 
C) Normal capacity utilization 
D) Both B and C are correct. 
A) Practical capacity 
B) Master-budget capacity utilization 
C) Normal capacity utilization 
D) Both B and C are correct.

Question 17

A manager can increase operating income by deferring maintenance beyond the current accounting period when absorption costing is used.

Accepted Answer

A) True 
 B)False

Question 18

To discourage producing for inventory, management can:

Accepted Answer

A) evaluate nonfinancial measures such as units in ending inventory compared to units in sales 
B) evaluate performance over a three- to five-year period rather than a single year 
C) incorporate a carrying charge for inventory in the internal accounting system 
D) All of these answers are correct. 
A) evaluate nonfinancial measures such as units in ending inventory compared to units in sales 
B) evaluate performance over a three- to five-year period rather than a single year 
C) incorporate a carrying charge for inventory in the internal accounting system 
D) All of these answers are correct.

Question 19

Absorption costing is required for all of the following except:

Accepted Answer

A) generally accepted accounting principles 
B) determining a competitive selling price 
C) external reporting to shareholders 
D) income tax reporting 
A) generally accepted accounting principles 
B) determining a competitive selling price 
C) external reporting to shareholders 
D) income tax reporting

Question 20

________ method(s)include(s)fixed manufacturing overhead costs as inventoriable costs.

Accepted Answer

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

Exam 9: Inventory Costing and Capacity Analysis

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

Unused capacity is not considered wasted resources because capacity has to be purchased in "large chunks" to accommodate future needs, NOT just the needs of the current period.

Capacity costs:

Throughput costing results in a higher amount of manufacturing costs being placed in inventory than either variable or absorption costing.

An favorable production-volume variance occurs when:

Fixed manufacturing cost per unit will be the same no matter what capacity concept is used.

Using master-budget capacity to set selling prices:

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

Discuss the three methods to dispose of production volume variance.

Variable and absorption costing may be combined with all costing systems EXCEPT:

How does the capacity level chosen to compute the budgeted fixed overhead cost rate affect the production-volume variance?

________ are subtracted from sales to calculate gross margin.

Theoretical capacity allows for:

________ is (are)based on the demand for the output of the plant.

A manager can increase operating income by deferring maintenance beyond the current accounting period when absorption costing is used.

To discourage producing for inventory, management can:

Absorption costing is required for all of the following except:

________ method(s)include(s)fixed manufacturing overhead costs as inventoriable costs.

The Accountants Role in the Organization

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Activity-Based Management

Master Budget and Responsibility Accounting

Flexible Budgets, Direct-Cost Variances, and Management Control

Flexible Budgets, Overhead Cost Variances, and Management Control

Determining How Costs Behave

Decision Making and Relevant Information

Pricing Decisions and Cost Management

Strategy, Balanced Scorecard, and Strategic Profitability Analysis

Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis

Allocation of Support-Department Costs, Common Costs, and Revenues

Cost Allocation: Joint Products and Byproducts

Process Costing

Spoilage, Rework, and Scrap

Balanced Scorecard: Quality, Time, and the Theory of Constraints

Inventory Management, Just-In-Time, and Simplified Costing Methods

Capital Budgeting and Cost Analysis

Management Control Systems, Transfer Pricing, and Multinational Considerations

Performance Measurement, Compensation, and Multinational Considerations

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