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Exam 9: Income Effects of Denominator Level on Inventory Valuation

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Question 31

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Calvin Enterprises produces a specialty statue item. The following information has been provided by management: Required: a. What is the cost per statue if absorption costing is used? b. What is the cost per statue if throughput costing is used? c. What is the total throughput contribution?

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a. $9 + $5 + $4 = $1...

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Question 32

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Use the information below to answer the following question(s) . Balloon Arrangements produces balloon bouquets. The following information has been provided by management: -What is the total cost per bouquet if absorption costing is used?

A) $5.50
B) $4.75
C) $3.75
D) $2.50
E) $1.98

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Question 33

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Both theoretical and practical capacity measure capacity in terms of demand for the output.

Which of the following is true concerning throughput costing?

When comparing the operating incomes between absorption costing and variable costing, and beginning finished inventory exceeds ending finished inventory, it may be assumed that

What is the theoretical capacity for the month of April?

The costing method that has been labelled as a "black hole" because fixed costs are inventoried is commonly known as

Throughput costing considers only direct materials and direct manufacturing labour to be truly variable costs.

Explain the difference between the gross margin format and the contribution margin format for the income statement. What information is highlighted with each?

Should a company with high fixed costs and unused capacity raise selling prices to try to fully recoup its costs?

Amalgamated Glass and Mirror Inc. had sales of 37,500 units and production of 50,000 units. Other information for the year included: There was no beginning inventory. Required: a. Compute the ending finished goods inventory under both absorption and variable costing. b. Compute the cost of goods sold under both absorption and variable costing.

The method of costing that excludes fixed manufacturing costs from inventorial costs is known as

Throughput costing is also referred to as super-variable costing.

A possible criticism of ________ costing is that fixed manufacturing overhead is treated as a/an ________.

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. -Fixed manufacturing costs expensed on the income statement (excluding adjustments for variances) total

Plate Company just hired its fourth production manager in three years. All three previous managers had quit because they could not get the company above the break-even point, even though sales had increased somewhat each year. The company was operating at about 60 percent of plant capacity. The flatware industry was growing, so increased sales were not out of the question. I. R. Dumm took the job as manager of the production division with a very attractive salary package. After interviewing for the position, he proposed a salary and bonus package that would give him a very small salary but a large bonus if he took the operating income (using absorption costing) above the break-even point during his very first year. Required: What do you think Mr. Dumm had in mind for increasing the company's operating income?

The new plant manager has lots of ideas for change. His bonus is tied directly to plant profit, and last month he had the accounting department change from absorption costing to variable costing, as he heard at a meeting that contribution margin was usually higher than gross margin. This month, he wants to change to throughput costing, in hopes that throughput contribution will be greater than contribution margin. The relevant data are: Sales $150,000; opening inventory $2,500; variable cost of goods manufactured $24,000; ending inventory using variable costing $8,000; variable marketing cost $15,200; and, there are no variable cost variances. The above numbers are the same for throughput costing except as follows: direct materials in goods manufactured $13,200; and, ending inventory $4,400. Required: a. Calculate the contribution margin and throughput margin. b. Does this appear to be a sensible strategy by the plant manager?

________ is the level of capacity based on producing at full efficiency all the time.

Use the information below to answer the following question(s) . Balloon Arrangements produces balloon bouquets. The following information has been provided by management: -Which of the following criteria should be used to evaluate management according to critics of absorption costing?

Answer the following question(s) using the information below. Reusser Company produces wood statues. Management has provided the following information: -If 400 units are produced and 600 units are sold, ________ results in the greatest amount of operating income.