Understanding Variable and Absorption Costing: Quiz Insights
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CUHK**We aren't endorsed by this school
Course
BUSINESS 112
Subject
Accounting
Date
Dec 11, 2024
Pages
3
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CHAPTER 9 QUIZ1.The main difference between variable costing and absorption costing isa.the treatment of nonmanufacturing costs.b.the accounting for variable manufacturing costs.c.the accounting for fixed manufacturing costs.d.their value for decision makers.The following data apply to questions 2 and 3.Alvin Inc. planned and actually manufactured 200,000 units of its single product in 2008, its first year of operations. Variable manufacturing costs were $30 per unit of product. Planned and actualfixed manufacturing costs were $600,000, and marketing and administrative costs totaled $400,000 in 2004. Alvin sold 120,000 units of product in 2008 at a selling price of $40 per unit.2.[CMA Adapted] Alvin’s 2008 operating income using variable costingisa.$800,000.b.$600,000.c.$440,000.d.$200,000. 3.[CMA Adapted] Alvin’s 2008 operating income using absorption costingisa.$840,000.b.$800,000.c.$440,000.d.$200,000.4.[CPA Adapted] Operating income using variable costing as compared to absorption costing would be highera.when the quantity of beginning inventory equals the quantity of ending inventory.b.when the quantity of beginning inventory is more than the quantity of ending inventory.c.when the quantity of beginning inventory is less than the quantity of ending inventory.d.under no circumstances.5.Absorption costing enables managers to increase operating income in the short run by changing production schedules. Which statement is trueregarding such action?a.The reason for increased operating income is the deferral of fixed manufacturing overhead contained in unsold inventory.b.A desirable effect of these changes in production is “cherry picking” the production line.c.This is done through decreases in the production schedule as customer demand for product falls.d.None of the above statements are true regarding the manager’s action to increase operating income through changes in the production schedule.6.The proponents of throughput costinga.maintain that variable costing undervalues inventories.9-1Copyright © 2018 Pearson Education, Ltd.
b.maintain that it provides more incentive to produce for inventory than do either variable or absorption costing.c.argue that only direct materials and direct labor are “truly variable” and all indirect manufacturing costs be written off in the period in which they are incurred.d.treat all costs except those related to variable direct materials as costs of the period in which they are incurred.7.The absolute minimum absorption-inventory cost that would be reported under the best conceivable operating conditions is a description of which type of denominator-level concept cost?a.Master-budget utilizationb.Practical capacityc.Theoretical capacityd.Normal utilization8.Use of capacity levels based on demanda.hides the amount of unused capacity.b.highlights the cost of capacity acquired but not used.c.yields a cost rate that does not include a charge for unused capacity.d.results in a price that covers the cost of capacity customers expect to pay.9.A company may experience the downward demand spiral whena.the use of theoretical capacity as a denominator level has contributed to budgets that project sales to be higher than actually attainable.b.spreading capacity costs over a small number of units and setting selling prices even higher to recover those costs.c.engaged in a cyclical business and after experiencing an upturn.d.the production-volume variance is unfavorable each time period during a year.10.The manner in which a company deals with end-of-period variances will determine the effect production-volume variances have on the company’s end-of-period operating income. When the chosen capacity level exceeds the actual production level, which approach to end-of-period variances results in an unfavorable production-volume variance affect on that period’s operating income?a.Proration approachb.Adjusted allocation-rate approachc.Theoretical approachd.Write-off to cost-of-goods-sold approachCHAPTER 9 QUIZ SOLUTIONS1.c2.d3.c4.b5.a9-2Copyright © 2018 Pearson Education, Ltd.
6.d7.c8.a9.b10.dQuiz Question Calculations2.Sales 120,000 $40/unit$4,800,000VC 120,000 $30/unit3,600,000Contribution margin$1,200,000Fixed costs ($600,000 + $400,000)1,000,000Operating income200,000========3.Sales 120,000 $40$4,800,000COGSVariable 3,600,000Fixed360,000*3,960,000Gross profit840,000Fixed costs400,000Operating income440,000=======Fixed manufacturing cost $600,000 / 200,000 units = $3 unit$3/unit 120,000 units sold = $360,0009-3Copyright © 2018 Pearson Education, Ltd.