Question 1

Gross margin is to absorption costing as ____ is to variable costing.

Accepted Answer

A)  gross profit 
B)  contribution margin 
C)  income 
D)  territory margin

Question 2

Figure 8-3 Martin Company uses 625 units of a part each year. The cost of placing one order is $8; the cost of carrying one unit in inventory for a year is $4.
-Refer to Figure 8-3. Martin has decided to begin ordering 40 units at a time. What is the average annual carrying cost of Martin's new policy?

Accepted Answer

A)  $80 
B)  $60 
C)  $160 
D)  $4 
E)  $90

Question 3

The ______________ approach maintains that goods should be pulled through the system by present demand rather than being pushed through on a fixed schedule based on anticipated demand.

Accepted Answer

The answer of The ______________ approach maintains that goods should...

Question 4

Ramon Company reported the following units of production and sales for June and July:
  Income under absorption costing for June was $40,000; income under variable costing for July was $50,000. Fixed costs were $600,000 for each month.
-Refer to Figure 8-7. How much was income for June using variable costing?

Accepted Answer

A)  $40,000 
B)  $20,000 
C)  $(40,000) 
D)  $(20,000)

Question 5

Assume the following information for a product line:
 
-Refer to Figure 8-12. What is the segment margin of the product line?

Accepted Answer

A)  $200,000 
B)  $325,000 
C)  $350,000 
D)  $240,000

Question 6

Loring Company had the following data for the month:
  Fixed overhead is $4,000 per month; it is applied to production based on normal activity of 2,000 units. During the month, 2,000 units were produced. Loring started the month with 300 units in beginning inventory, with unit product cost equal to this month's unit product cost. A total of 2,100 units were sold during the month at price of $14. Selling and administrative expense for the month, all fixed, totaled $3,600.
-Refer to Figure 8-2. What is the unit product cost under absorption costing?

Accepted Answer

A)  $8.60 
B)  $10.60 
C)  $8.20 
D)  $10.20 
E)  $7.20

Question 7

Expenses that persist even if one of the segments to which they relate is eliminated are known as ________________.

Accepted Answer

The answer of Expenses that persist even if one of...

Question 8

The formula for total carrying cost is

Accepted Answer

A)  number of orders per year  * cost of placing an order. 
B)  number of orders per year/cost of placing an order. 
C)  average number of units in inventory * cost of carrying one unit in inventory. 
D)  average number of units in inventory/cost of carrying one unit in inventory. 
E)  ordering cost + carrying cost.

Question 9

If the number of units produced in a period is smaller than the number of units sold in period, absorption costing income will be higher than variable costing income.

Accepted Answer

A) True 
 B)False

Question 10

Sanders Company has the following information for last year:
  There were no beginning inventories.
-Refer to Figure 8-5. What is the value of ending inventory for Sanders using the absorption costing method?

Accepted Answer

A)  $360,000 
B)  $280,000 
C)  $220,000 
D)  $380,000

Question 11

Nauman Company has the following information pertaining to its two divisions for last year:
  Common expenses are $24,000 for the year.
-Refer to Figure 8-10. What is the segment margin for Division Y?

Accepted Answer

A)  $310,000 
B)  $210,000 
C)  $240,000 
D)  $40,000

Question 12

When monthly production volume is constant and sales volume is less than production, income determined with variable costing procedures will

Accepted Answer

A)  always be greater than income determined using absorption costing. 
B)  always be less than income determined using absorption costing. 
C)  be equal to income determined using absorption costing. 
D)  be equal to contribution margin per unit times units sold.

Question 13

Stockout costs

Accepted Answer

A) the costs of not having a product available when demanded by a customer 
B) the costs of carrying inventory 
C) approach that maintains goods should be pulled through the system by present demand 
D) the number of units in the order quantity that minimizes the total cost 
E) the costs of placing and receiving an order

Question 14

The following information pertains to Stark Corporation:
 
-Refer to Figure 8-9. What is the value of ending inventory using the variable costing method?

Accepted Answer

A)  $310,000 
B)  $250,000 
C)  $200,000 
D)  $390,000

Question 15

The two major costs associated with inventory are

Accepted Answer

A)  ordering costs and setup costs. 
B)  setup costs and stockout costs. 
C)  stockout costs and carrying costs. 
D)  ordering costs and carrying costs. 
E)  None of these.

Question 16

Last year, Fabre Company produced 20,000 units and sold 18,000 units at a price of $12. Costs for last year were as follows:
  Fixed factory overhead is applied based on expected production. Last year, Fabre expected to produce 20,000 units.
-Refer to Figure 8-1. Assuming that beginning inventory was zero, what is the value of ending inventory under variable costing?

Accepted Answer

A)  $3,300 
B)  $2,500 
C)  $5,000 
D)  $3,720 
E)  $7,200

Question 17

The _______________ income statement groups expenses according to cost behavior.

Accepted Answer

The answer of The _______________ income statement groups expenses according...

Question 18

Inventory values calculated using variable costing as opposed to absorption costing will generally be

Accepted Answer

A)  equal. 
B)  less. 
C)  greater. 
D)  twice as much.

Question 19

Steele Corporation has the following information for January, February, and March:
  Production costs per unit (based on 10,000 units) are as follows:
  There were no beginning inventories for January, and all units were sold for $50. Costs are stable over the three months.
-Refer to Figure 8-8. What is the January ending inventory for Steele Corporation using the variable costing method?

Accepted Answer

A)  $260,000 
B)  $78,000 
C)  $108,000 
D)  $90,000

Question 20

A disadvantage of absorption costing is

Accepted Answer

A)  that it is not a useful format for decision making. 
B)  that it assigns only manufacturing costs to the product. 
C)  All of these. 
D)  None of these.

Exam 8: Absorption and Variable Costing, and Inventory Management