1) Absorption costing:
A) expenses marketing costs as cost of goods sold
B) treats direct manufacturing costs as a period cost
C) includes fixed manufacturing overhead as an inventoriable cost D) is required for internal reports to managers
2) Variable costing:
A) expenses administrative costs as cost of goods sold
B) treats direct manufacturing costs as a product cost
C) includes fixed manufacturing overhead as an inventoriable cost D) is required for external reporting to shareholders
3) The contribution-margin format of the income statement:
A) is used with absorption costing
B) highlights the lump sum of fixed manufacturing costs
C) distinguishes manufacturing costs from nonmanufacturing costs D) calculates gross margin
4) The gross-margin format of the income statement:
A) distinguishes between manufacturing and nonmanufacturing costs B) distinguishes variable costs from fixed costs
C) is used with variable costing
D) calculates contribution margin
Answer the following questions using the information below:
Peggy's Pillows produces and sells a decorative pillow for $75.00 per unit. In the first month of operation, 2,000 units were produced and 1,750 units were sold. Actual fixed costs are the same as the amount budgeted for the month. Other information for the month includes:
Variable manufacturing costs$20.00 per unit
Variable marketing costs$ 3.00 per unit
Fixed manufacturing costs$ 7.00 per unit
Administrative expenses, all fixed$15.00 per unit
Finished goods250 units
5) What is cost of goods sold per unit using variable costing? A) $20
6) What is cost of goods sold using variable costing?
B) $40,000 20$*1750=35,000$
7) What is contribution margin using variable costing?
C) $104,000 ($75 × 1,750) - [($20 + $3) × 1,750 units] = $91,000 D) $110,000
8) What is operating income using variable costing?
C) $65,750 $91,000 - [($7 + $15) × 2,000 units] = $47,000 D) $47,000
9) One possible means of determining the difference between operating incomes for absorption costing and variable costing is by: A) subtracting sales of the previous period from sales of this period B) subtracting fixed manufacturing overhead in beginning inventory from fixed manufacturing overhead in ending inventory C) multiplying the number of units produced by the budgeted fixed manufacturing cost rate D) adding fixed manufacturing costs to the production-volume variance
10) At the end of the accounting period Bumsted Corporation reports operating income of $30,000. If Bumstead's inventory levels decrease during the accounting period A) variable costing will report less operating income than absorption costing. B) absorption costing will report less operating income than variable costing. C) variable costing and absorption costing will report the same operating income. D) None of the above are correct.
11) Under absorption costing, if a manager's bonus is tied to operating income, then increasing inventory levels compared to last year would result in: A) increasing the manager's bonus
B) decreasing the manager's bonus
C) not affecting the manager's bonus
D) being unable to determine the manager's bonus using only the above information
12) Advocates of throughput costing maintain that:
A) both variable and fixed are necessary to produce goods; therefore, both types of costs should be inventoried B) all manufacturing costs plus some design costs should be inventoried C) fixed manufacturing costs are related to the capacity to produce rather than to the actual production of specific units D) Both A and C are correct.
13) Theoretical capacity: