Exam 9: Inventory Costing and Capacity Analysis

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?

There is NOT an output-level variance for variable costing, because:

________ method(s)expense(s)direct material costs as cost of goods sold.

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?

If the unit level of inventory increases during an accounting period, then:

Match each of the following items with one or more of the denominator-level capacity concepts by putting the appropriate letter(s)by each item: 1. Reduces theoretical capacity by considering unavoidable operating interruptions 2. Producing at full efficiency all the time 3. Measures capacity levels in terms of demand 4. Level of capacity utilization that satisfies average customer demand over a period 5. Does not allow for plant maintenance 6. Engineering and human resource factors are important when estimating capacity 7. Level of capacity utilization that managers expect for the current budget period 8. Ideal goal of capacity utilization 9. Takes into account seasonal, cyclical, and trend factors 10. Measures capacity levels in terms of what a plant can supply

Unused capacity:

Answer the following questions using the information below: A manufacturing firm is able to produce 2,000 pairs of sneakers per hour, at maximum efficiency. There are three eight-hour shifts each day. Due to unavoidable operating interruptions, production averages 1,600 units per hour. The plant actually operates only 27 days per month. -What is the theoretical capacity for the month of April?

Switching production to products that absorb the highest amount of fixed manufacturing costs is also called:

Nonfinancial measures such as comparing units in ending inventory this period to units in ending inventory last period can help reduce buildup of excess inventory.

________ is the level of capacity based on producing at full efficiency all the time.

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:

The manager of the manufacturing division of Iowa Windows does not understand why income went down when sales went up. Some of the information he has selected for evaluation include: The division operated at normal capacity during January. Variable manufacturing cost per unit was $5, and the fixed costs were $400,000. Selling and administrative expenses were all fixed. Required: Explain the profit differences. How would variable costing income statements help the manager understand the division's operating income?

The contribution-margin format of the income statement:

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

Using master-budget capacity for pricing purposes can lead to a downward demand spiral.

Answer the following questions using the information below: Russert Company produces wood statues. Management has provided the following information: -What is the cost per statue if throughput costing is used?

If a company chooses practical capacity for planning purposes, it must also use practical capacity for performance evaluation.

The use of theoretical capacity results in an unrealistically low fixed manufacturing cost per unit because it is based on:

The difference between operating incomes under variable costing and absorption costing centers on how to account for: