Cost Accounting Test Bank

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CHAPTER 9
INVENTORY COSTING AND CAPACITY ANALYSIS

TRUE/FALSE

1.Absorption costing “absorbs” only variable manufacturing costs.

Answer:FalseDifficulty:1Objective:1
Terms to Learn:absorption costing
Absorption costing “absorbs” all manufacturing costs, both fixed and variable.

2.Variable costing includes all variable costs — both manufacturing and nonmanufacturing — in inventory.

Answer:FalseDifficulty:1Objective:1
Terms to Learn:variable costing
Variable costing includes only manufacturing variable costs in inventory.

3.Under both variable and absorption costing, all variable manufacturing costs are inventoriable costs.

Answer:TrueDifficulty:1Objective:1
Terms to Learn:variable costing, absorption costing

4.Under variable costing, fixed manufacturing costs are treated as an expense of the period.

Answer:TrueDifficulty:1Objective:1
Terms to Learn:variable costing

5.The contribution-margin format of the income statement is used with absorption costing.

Answer:FalseDifficulty:1Objective:2
Terms to Learn:absorption costing
The contribution-margin format of the income statement is used with variable costing.

6.The contribution-margin format of the income statement distinguishes manufacturing costs from nonmanufacturing costs.

Answer:FalseDifficulty:1Objective:2
Terms to Learn:variable costing
The contribution-margin format of the income statement distinguishes variable costs from fixed costs. 7.The gross-margin format of the income statement highlights the lump sum of fixed manufacturing costs.

Answer:FalseDifficulty:2Objective:2
Terms to Learn:absorption costing
The gross-margin format of the income statement distinguishes manufacturing costs from nonmanufacturing costs, but it does not highlight the lump sum of fixed manufacturing costs.

8.In absorption costing, all nonmanufacturing costs are subtracted from gross margin.

Answer:TrueDifficulty:1Objective:2
Terms to Learn:absorption costing

9.Direct costing is a perfect way to describe the variable-costing inventory method.

Answer:FalseDifficulty:2Objective:2
Terms to Learn:direct costing
Direct costing is a less than perfect way to describe this method because not all variable costs are inventoriable costs.

10. When variable costing is used, an income statement will show gross margin.

Answer:FalseDifficulty:2Objective:2
Terms to Learn:variable costing
When variable costing is used, an income statement will show contribution margin.

11. The income under variable costing will always be the same as the income under absorption costing.

Answer:FalseDifficulty:2Objective:2
Terms to Learn:variable costing, absorption costing
The income under variable costing will sometimes be the same as the income under absorption costing.

12.Absorption costing is required by GAAP (Generally Accepted Accounting Principles) for external reporting.

Answer:TrueDifficulty:2Objective:2
Terms to Learn:absorption costing

13.When production deviates from the denominator level, a production-volume variance always exists under absorption costing.

Answer:TrueDifficulty:1Objective:3
Terms to Learn:absorption costing
14.Fixed manufacturing costs included in cost of goods available for sale + the production-volume variance will always = total fixed manufacturing costs under absorption costing.

Answer:TrueDifficulty:1Objective:3
Terms to Learn:absorption costing

15.The production-volume variance only exists under absorption costing and not under variable costing.

Answer:TrueDifficulty:1Objective:3
Terms to Learn:absorption costing, variable costing

16.When the unit level of inventory increases during an...
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