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 contribution margin using variable costing?

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

Which of the following cost(s)are inventoried when using absorption costing?

Throughput costing provides more incentive to produce for inventory than either variable costing or, especially, absorption costing.

________ is the level of capacity utilization that satisfies average customer demand over a period that includes seasonal, cyclical, and trend factors.

Advocates of throughput costing argue that:

Answer the following questions using the information below: Greene Manufacturing incurred the following expenses during 2011: -What will be the breakeven point in units if absorption costing is used?

Many companies have switched from absorption costing to variable costing for internal reporting:

Practical capacity is unattainable in the real world.

Under absorption costing, managers can increase operating income by holding less inventories at the end of the period.

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.

Sutton Hot Dog Stand sells hot dogs for $1.35. Variable costs are $1.05 per unit with fixed production costs of $90,000 per month at a level of 400,000 units. Fixed administrative costs total $30,000. Sales average 400,000 units per month, with planned production of 400,000 hot dogs. Required: a. What are breakeven unit sales under variable costing? b. What are breakeven unit sales under absorption costing if she sells everything she prepares? c. What are breakeven unit sales under absorption costing if average sales are 498,000 and planned production is changed to 500,000?

Answer the following questions using the information below: Ms. Janice Meyers, the company president, has heard that there are multiple breakeven points for every product. She does not believe this and has asked you to provide the evidence of such a possibility. Some information about the company for 2011 is as follows: -What are breakeven sales in units using absorption costing?

Using normal capacity for pricing decisions can lead to setting noncompetitive selling prices.

Practical capacity is the level of capacity that reduces theoretical capacity by considering unavoidable operating interruptions, such as scheduled maintenance time, shutdowns for holidays, and so on.

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

Bosely Corporation is in the business of selling computers. The following expenses were incurred in March 2011: What will be the breakeven point if variable costing is used?

Managers can increase operating income when absorption costing is used by producing less inventory.

One of the most common problems reported by companies using variable costing is the difficulty of classifying costs into fixed or variable categories.

Determining the "right" level of capacity is one of the most strategic and difficult decisions managers face.