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Quiz 8 Chapter 9
Inventory Costing and Capacity
Analysis
1)
The two
most common methods of costing inventories in manufacturing companies are
variable costing and fixed costing.
2)
Absorption
costing "absorbs" only variable manufacturing costs.
3)
Variable
costing includes all variable costsboth
manufacturing and nonmanufacturingin
inventory.
4)
Under
both variable and absorption costing, all variable manufacturing costs are
inventoriable costs.
5)
The main
difference between variable costing and absorption costing is the way in which
fixed manufacturing costs are accounted for.
6)
Under
variable costing, fixed manufacturing costs are treated as an expense of the
period.
7)
The
contribution-margin format of the income statement is used with absorption
costing.
8)
The
contribution-margin format of the income statement distinguishes manufacturing
costs from nonmanufacturing costs.
9)
The
gross-margin format of the income statement highlights the lump sum of fixed
manufacturing costs.
10)
In
absorption costing, all nonmanufacturing costs are subtracted from gross
margin.
11)
Direct
costing is a perfect way to describe the variable-costing inventory
method.
12)
When
variable costing is used, an income statement will show gross margin.
13)
The
income under variable costing will always be the same as the income under
absorption costing.
14)
Absorption
costing is required by GAAP (Generally Accepted Accounting Principles) for
external reporting.
15)
When
production deviates from the denominator level, a production-volume variance
always exists under absorption costing.
16)
Fixed manufacturing
costs included in cost of goods available for sale + the production-volume
variance will always = total fixed manufacturing costs under absorption
costing.
17)
The
production-volume variance only exists under absorption costing and not under
variable costing.
18)
When the
unit level of inventory increases during an accounting period, operating income
is greater under variable costing than absorption costing.
19)
The
difference in operating income under absorption costing and variable costing is
due solely to the timing difference of expensing fixed manufacturing
costs.
20)
If
managers report inventories of zero at the start and end of each accounting
period, operating incomes under absorption costing and variable costing will be
the same.
21)
Under
absorption costing, managers can increase operating income by holding more
inventories at the end of the period.
22)
Many
companies use variable costing for internal reporting to reduce the undesirable
incentive to build up inventories.
23)
Under
variable costing, managers can increase operating income by simply producing
more inventory at the end of the accounting period even if that inventory never
gets sold.
24)
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.
25)
One of
the most common problems reported by companies using variable costing is the
difficulty of classifying costs into fixed or variable categories.
26)
Managers
can increase operating income when absorption costing is used by producing more
inventory.
27)
A
manager can increase operating income by deferring maintenance beyond the
current accounting period when absorption costing is used.
28)
Throughput
costing considers only direct materials and direct manufacturing labor to be
truly variable costs.
29)
Throughput
costing is also referred to as super-variable costing.
30)
When
production quantity exceeds sales, throughput costing results in reporting
greater operating income than variable costing.
31)
Throughput
costing provides more incentive to produce for inventory than does absorption
costing.
32)
A
company may use absorption costing for external reports and still choose to use
throughput costing for internal reports.
33)
Throughput
contribution equals revenues minus all product costs.
34)
Throughput
costing results in a higher amount of manufacturing costs being placed in
inventory than either variable or absorption costing.
35)
Determining
the "right" level of capacity is one of the most strategic and
difficult decisions managers face.
36)
Both
theoretical and practical capacity measure capacity in terms of demand for the
output.
37)
Normal
capacity utilization is the expected level of capacity utilization for the
current budget period, which is typically one year.
38)
Normal
capacity utilization is not the same as master-budget capacity
utilization.
39)
Theoretical
capacity is generally much larger than master-budget capacity utilization.
40)
Theoretical
capacity allows time for regular machine maintenance.
41)
Estimates
of human factors such as the increased risk of injury when machines work at
faster speeds are important when estimating practical capacity.
42)
Theoretical
capacity is unattainable in the real world.
43)
Theoretical
capacity is the capacity level that represents what the firm is able to obtain
under reasonable circumstances.
44)
Fixed
manufacturing cost per unit will be the same no matter what capacity concept is
used.
45)
Data
from normal costing and standard costing are used in pricing and product-mix
decisions.
46)
If a
company chooses practical capacity for planning purposes, it must also use
practical capacity for performance evaluation.
47)
Theoretical
capacity is most often used to cost a product.
48)
Practical
capacity highlights capacity acquired but currently not used.
49)
For
benchmarking purposes it is best to use master-budget capacity because all
competitors use about the same about of capacity for production.
50)
Using
normal capacity for pricing decisions can lead to setting noncompetitive
selling prices.
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