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Exam 9: Income Effects of Denominator Level on Inventory Valuation

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Question 71

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The break-even point under absorption costing depends on the: fixed costs, contribution margin per unit, unit level sales, unit level of production, and overhead cost rate.

A) True
B) False

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Question 72

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Normal capacity utilization is not the same as master-budget capacity utilization.

A) True
B) False

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Question 73

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Absorption costing defers the fixed manufacturing costs in ending inventory to a future period, but variable costing expenses these costs in the current period.

Answer the following question(s) using the information below. Heinrich Corporation budgeted fixed manufacturing costs of $6,000 during 2012. Other information for 2012 includes: The company uses absorption costing and the fixed manufacturing cost rate is based on the budgeted denominator level. Manufacturing variances are closed to cost of goods sold. -Which of the following is a weakness particular to the absorption costing method?

Generally Accepted Accounting Principles require that ________ costing is/are the inventory method(s) to be used in Canada for financial reporting.

Stoll Bottling Works manufactures glass bottles. January and February operations were identical in every way except for the planned production. January had a production denominator of 35,000 units. February had a production denominator of 36,000 units. Fixed manufacturing costs totalled $126,000. 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. Required: Compute the operating income for both months using absorption costing.

a. Explain the difference between the variable and absorption costing methods. b. Which method(s) are required for external reporting? For internal reporting?

For Consumer Lumber what would be the total difference between operating incomes under absorption costing and variable costing?

Holding fixed cost and unit contribution margin constant, operating income rises as the level of sales rises.

Variable costing regards fixed manufacturing overhead as

When the distinction between variable and fixed costs is one of the important elements in the preparation of the income statement, the method used should be the

One of the biggest reasons variable costing is controversial involves

The main difference between variable costing and absorption costing is the way in which fixed manufacturing costs are accounted.

Absorption costing is also known as

The denominator-level concept based on capacity utilization for the anticipated level of output that will satisfy customer demand for a single operating cycle, and complies with the Canada Revenue Agency for tax purposes, is the

Theoretical capacity is based on which of the following assumptions?

Master-budget capacity utilization

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?

The difference between variable costing and absorption costing centres on accounting for variable costs.

Full product costs under absorption costing include only inventoriable costs and upstream costs.