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Exam 9: Income Effects of Denominator Level on Inventory Valuation

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Question 61

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Which of the following is TRUE concerning operating income calculated under variable costing as compared to absorption costing?

A) Operating income is lower under variable costing when production exceeds sales.
B) Operating income is higher under variable costing when production exceeds sales.
C) Operating income is lower under variable costing when sales exceeds production only if there is a production-volume variance.
D) operating income is higher under variable costing when production exceeds sales only if there is a production-volume variance.
E) The relationship between production and sales has no bearing on the differences in operating income between the two methods.

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Question 62

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Use the information below to answer the following question(s) . Beauty Supply Company manufactures shampoo.The supervisor has provided the following information and stated that standard costing is used for manufacturing,marketing,and administrative costs. There were no beginning or ending inventories of materials or work-in-process. -What is the per unit manufacturing cost using absorption costing?

A) $23.00
B) $18.00
C) $27.00
D) $12.00
E) $10.00

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Question 63

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Answer the following question(s) using the information below. Stober Company produces a specialty item.Management has provided the following information: -What is the cost per statue if throughput costing is used?

Which of the following concepts is most compatible with absorption costing in a manufacturing environment?

Alliance Realty bought a 2,000 acre island for $10,000,000 and divided it into 200 equal size lots.As the lots are sold they are cleared at an average cost of $5,000.Storm drains and driveways are installed at an average cost of $8,000 per site.Sales commissions are 10 percent of selling price.Administrative costs are $850,000 per year.The average selling price was $160,000 per lot during the year when 50 lots were sold. During the subsequent year,the company bought another 2,000 acre island and developed it exactly the same way.Lot sales in the second year totalled 300 with an average selling price of $160,000.All costs were the same as in the first year. Required: Prepare income statements for both years using both absorption and variable costing methods.Use the gross margin format for the absorption method and the contribution margin format for the variable costing method.

Stamp Bottling Works manufactures glass bottles.January began with 15,000 units carried at $108,750.An additional 35,000 units were produced that month.February had production of 40,000 units.Fixed manufacturing costs totalled $119,000 in January and $132,000 in February.Sales for both months totalled 45,000 units with variable manufacturing costs of $4 per unit.Selling and administrative costs were $0.40 per unit variable and $60,000 fixed.The selling price was $10 per unit.Inventory moves on a first-in,first-out basis. Required: Compute the operating income for both months using absorption costing.

Use the information below to answer the following question(s) . Car Tunes produces car radios.Actual fixed manufacturing overhead is the same as the budgeted amount,$330,000.Production in September increased by 10% over the previous month's production.August production was 5,000 radios.The production level is the same as the budgeted denominator level.At the end of September,1,000 radios remained in stock.In August,all of the radios were sold by the end of the month and there was no remaining work in process inventory. -What are Car Tune's appropriate period costs for September if variable costing is used?

Jamie's Hot Dog Stands sells hot dogs at ballparks across Canada for $1.55.Variable costs are $1.15 per unit with fixed production costs of $80,000 per month at a level of 320,000 units.Fixed administrative costs total $25,000.Sales average 320,000 units per month,with planned production of 320,000 hot dogs. Required: a.What are break-even unit sales under variable costing? b.What are break-even unit sales under absorption costing if she sells everything she prepares? c.What are break-even unit sales under absorption costing if average sales are 399,000 and planned production is changed to 400,000?

What is throughput costing? What advantages is it purported to have over variable and absorption costing?

Megredy Company prepared the following absorption costing income statement for the year ended May 31,2016. Additional information follows: Selling and administrative expenses include $1.50 of variable cost per unit sold.There was no beginning inventory,and 17,500 units were produced.Variable manufacturing costs were $11 per unit.Actual fixed costs were equal to budgeted fixed costs. Required: Prepare a variable-costing income statement for the same period.

Which of the following is a weakness particular to the absorption costing method?

Each unit in inventory under absorption costing absorbs fixed manufacturing costs.

Variable costs of value chain areas other than manufacturing are typically written off as period costs regardless of the costing method used.

Answer the following question(s) using the information below. The following information pertains to the Bean Company: -What is the absorption costing break-even point in units if production is increased to 12,000 units?

Plate Company just hired its fourth production manager in three years.All three previous managers had quit because they could not get the company above the break-even point,even though sales had increased somewhat each year.The company was operating at about 60 percent of plant capacity.The flatware industry was growing,so increased sales were not out of the question. I.R.Dumm took the job as manager of the production division with a very attractive salary package.After interviewing for the position,he proposed a salary and bonus package that would give him a very small salary but a large bonus if he took the operating income (using absorption costing)above the break-even point during his very first year. Required: What do you think Mr.Dumm had in mind for increasing the company's operating income?

Which of the following variances exists only under absorption costing?

Absorption costing is also known as

Theoretical capacity is based on which of the following assumptions?

You are the management accountant for the West coast division of a musical instrument manufacturing company.There are three manufacturing plants in your division.Each plant manager was given decision making authority in terms of production,as long as income for their plant kept on pace.The manager at Plant A has consistently been the leader in profit for the division,but the other two managers are complaining that Plant A doesn't seem to be selling any more product than they are.The division manager has noticed higher inventory levels at Plant A,which the plant manager justifies by saying the higher levels are needed to ensure adequate sales.The division manager suspects that there could be other reasons,and she has asked you to provide three proposals for revising performance evaluation.

Direct costing is not truly synonymous with variable costing since variable costing does not include all direct costs as inventoriable costs.