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Exam 9: Income Effects of Denominator Level on Inventory Valuation

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Question 91

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Which of the following is an example of a drawback of using absorption costing?

A) It allows management the ability to manipulate operating income via production schedules.
B) An inventoried cost will eventually become part of cost of goods sold.
C) The company's sales level drives the production schedules.
D) A manager may increase maintenance activities above the budgeted level for the current period.
E) Expensing fixed costs as period costs reducing operating income.

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Question 92

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Answer the following question(s) using the information below. Reusser Company produces wood statues.Management has provided the following information: -What is the cost per statue if throughput costing is used?

A) $11.00
B) $9.50
C) $7.50
D) $5.00
E) $6.50

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Question 93

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Variable manufacturing costs are accounted for in the same manner on the income statement regardless of whether absorption or variable costing is used.

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

The master-budget capacity utilization,rather than normal capacity utilization or practical capacity,is what should be used for evaluating a marketing manager's performance in the current year.

The denominator-level concept based on capacity utilization for the anticipated level of output that will satisfy customer demand for a single operating cycle is the

Operating income using absorption costing will be ________ than operating income if using variable costing.

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

Variable costing regards fixed manufacturing overhead as

Finch-Hutton Machine Works Ltd.uses standard costing based on a practical capacity of 1,050 tractor bearings per month.The actual production for the month of January was 980.The standard variable cost per unit is $11 and budgeted monthly fixed manufacturing overhead is $78,750.Actual costs for January were $11,760 and $78,400 for variable and fixed respectively.There was no work-in-process inventory at the beginning or end of January.The finished goods inventory had no balance at the beginning of January;January sales were 900 units at $135 per unit.Non-manufacturing costs totalled $38,000.Variances are pro-rated to inventory and cost of goods sold based on the balances in the accounts before proration. Required: 1.Prepare an income statement in gross margin format using absorption costing. 2.Determine the balance of the January ending finished goods inventory. 3.Determine the variances in as much detail as possible then prepare the journal entries to clear the variance accounts.

Answer the following question(s) using the information below. A manufacturing firm is able to produce 1,000 pairs of shoes per hour,at maximum efficiency.There are three eight-hour shifts each day.Due to unavoidable operating interruptions,production averages 800 units per hour.In the month of June the plant actually operated only 25 days due to avoidable shut downs. -What is the practical capacity for the month of April?