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Exam 9: Inventory Costing and Capacity Analysis

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Question 81

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

A) to comply with external reporting requirements as required by GAAP
B) to increase bonuses for managers
C) to reduce the undesirable incentive to build up inventories that would show higher operating income
D) so the denominator level is more accurate

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verified

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Question 82

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Use of practical capacity results in an unrealistically small fixed manufacturing cost per unit because it is based on an idealistic and unattainable level of capacity.

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Question 83

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Charlassier Corporation manufactures and sells laptop computers and uses standard costing. For the month of September there was no beginning inventory, there were 3,000 units produced and 2,500 units sold. The manufacturing variable cost per unit is $385 and the variable operating cost per unit was $312.50. The fixed manufacturing cost is $450,000 and the fixed operating cost is $75,000. The selling price per unit is $925. Required: Prepare the income statement for Charlassier Corporation for September under variable costing.

Under both variable and absorption costing, research and development costs are period costs.

Proration approach restates all amounts in the general and subsidiary ledgers by using actual rather than budgeted cost rates.

Which of the following is true of absorption costing?

Evaluating performance of managers over a long period, say over three-to five-years, helps to reduce undesirable buildup of inventories.

Operating income reported on the end-of-period financial statements is changed when ________ is used to handle the production-volume variance at the end of the accounting period.

Which of the following capacity levels do proponents of activity-based costing recommend to be used as the denominator level to calculate activity cost rates?

Johnson 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% of selling price. Administrative costs are $850,000 per year. The average selling price was $160,000 per lot during 2017 when 50 lots were sold. During 2018, the company bought another 2,000-acre island and developed it exactly the same way. Lot sales in 2018 totaled 300 with an average selling price of $160,000. All costs were the same as in 2017. Required: Prepare income statements for both years using both absorption and variable costing methods.

For financial reporting, SFAS 151 requires:

Soul Socket Inc. manufactures socket wrenches. -For next month, the vice president of production plans on producing 4,450 wrenches per day. -The company can produce as many as 5,000 wrenches per day, but is more likely to produce 4,500 per day. -The demand for wrenches for the next three years is expected to average 4,250 wrenches per day. -Fixed manufacturing costs per month total $374,000. -The company works 22 days a month. -Fixed manufacturing overhead is charged on a per-wrench basis. Required: a.What is the theoretical fixed manufacturing overhead rate per wrench for the next month? b.What is the practical fixed manufacturing overhead rate per wrench for the next month? c.What is the normal fixed manufacturing overhead rate per wrench for the next month? d.What is the master-budget fixed manufacturing overhead rate per wrench for the next month?

Fast Track Auto produces and sells an auto part for $85 per unit. In 2017, 110,000 parts were produced and 90,000 units were sold. Other information for the year includes: What is the inventoriable cost per unit using absorption costing?

Practical capacity is the denominator-level concept that ________.

Advocates of throughput costing maintain that ________.

________ reduces theoretical capacity for unavoidable operating interruptions.

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

To discourage producing for inventory, management can ________.

Answer the following question using the information below: Jason Novelty Company produces a specialty item. Management has provided the following information: What is the total throughput contribution?

Variable costing regards fixed manufacturing overhead as a(n) ________.