Cost Accounting Foundations and Evolutions 9th Edition by Michael R. Kinney Cecily A. Raiborn test bank

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Cost Accounting Foundations and Evolutions 9th Edition by Michael R. Kinney Cecily A. Raiborn test bank

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Chapter 3Predetermined Overhead Rates, Flexible Budgets, and Absorption/Variable Costing
Student: ___________________________________________________________________________
1. Absorption costing is commonly used for external reporting. True    False
 
2. Absorption costing is commonly used for internal reporting. True    False
 
3. Variable costing is commonly used for internal reporting. True    False
 
4. Variable costing is commonly used for external reporting. True    False
 
5. In an actual cost system, factory overhead is assigned directly to products and services. True    False
 
6. In a normal cost system, factory overhead is assigned directly to products and services. True    False
 
7. In a normal cost system, factory overhead is assigned to an overhead control account and then allocated to products and services. True    False
 
8. In an actual cost system, factory overhead is assigned to an overhead control account and then allocated to products and services. True    False
 
9. A debit to the Factory Overhead account represents actual overhead costs. True    False
 
10. A debit to the Factory Overhead account represents applied overhead costs. True    False
 
11. A credit to the Factory Overhead account represents actual overhead costs. True    False
 
12. A credit to the Factory Overhead account represents applied overhead costs. True    False
 
13. If actual overhead exceeds applied overhead, factory overhead is said to be overapplied. True    False
 
14. If actual overhead exceeds applied overhead, factory overhead is said to be underapplied. True    False
 
15. If overapplied factory overhead is immaterial, the account is closed by a credit to Cost of Goods Sold. True    False
 
16. If overapplied factory overhead is material, the account is closed by a credit to Cost of Goods Sold. True    False
 
17. If overapplied factory overhead is immaterial, the account is closed by a debit to Cost of Goods Sold. True    False
 
18. If underapplied factory overhead is immaterial, the account is closed by a debit to Cost of Goods Sold. True    False
 
19. If underapplied factory overhead is immaterial, the account is closed by a credit to Cost of Goods Sold. True    False
 
20. If underapplied factory overhead is material, it is prorated among Work in Process Inventory, Finished Goods Inventory, and Cost of Goods Sold. True    False
 
21. The estimated maximum potential activity for a specified time is known as theoretical capacity. True    False
 
22. Practical capacity does not adjust for routine downtime in a production process. True    False
 
23. Normal capacity considers present and future production levels and cyclical fluctuations. True    False
 
24. Expected capacity is a long-run measure of activity. True    False
 
25. Practical capacity is the capacity that can be achieved during normal working hours. True    False
 
26. The regression equation y = a+ bX assumes that the function is curvilinear in nature. True    False
 
27. The regression equation y = a+ bX assumes that the function is linear in nature. True    False
 
28. The slope of a regression line is determined by dividing the change in activity level by the change in total cost. True    False
 
29. The slope of a regression line is determined by dividing the change in total cost by the change in activity level. True    False
 
30. The high-low method excludes outliers from the calculation of the slope of a regression line. True    False
 
31. When using the high-low method, fixed costs are computed before the variable component is computed. True    False
 
32. When using the high-low method, the variable component is computed before computing the fixed component. True    False
 
33. A flexible budget is a planning document that presents expected variable and fixed overhead costs at different activity levels. True    False
 
34. A master budget is a planning document that presents expected variable and fixed overhead costs at different activity levels. True    False
 
35. Plantwide overhead rates provide a more accurate computation of factory overhead than departmental overhead rates True    False
 
36. Plantwide overhead rates provide a less accurate computation of factory overhead than departmental overhead rates True    False
 
37. Absorption costing conforms with generally accepted accounting principles. True    False
 
38. Direct costing conforms with generally accepted accounting principles. True    False
 
39. The Internal Revenue Service allows the use of both variable and absorption costing. True    False
 
40. Sales minus cost of goods sold is referred to as variable contribution margin. True    False
 
41. Phantom profits result when absorption costing is used and sales exceed production. True    False
 
42. Phantom profits result when absorption costing is used and production exceeds sales. True    False
 
43. If production exceeds sales, absorption costing net income exceeds variable costing net income. True    False
 
44. If production exceeds sales, absorption costing net income is less than variable costing net income. True    False
 
45. If sales exceed production, absorption costing net income is less than variable costing net income. True    False
 
46. If sales exceed production, absorption costing net income exceeds variable costing net income. True    False
 
47. In a(n) ____________________ cost system, factory overhead is assigned directly to products and services. ________________________________________
 
48. In a(n) ____________________ cost system, factory overhead is assigned to an overhead control account and then allocated to products and services. ________________________________________
 
49. The dollar amount of overhead assigned to work-in-process inventory using a predetermined rate is known as ____________________ overhead. ________________________________________
 
50. If actual overhead exceeds applied overhead, factory overhead is said to be ____________________. ________________________________________
 
51. If actual overhead is less than applied overhead, factory overhead is said to be ____________________. ________________________________________
 
52. If underapplied or overapplied factory overhead is material, it is prorated among ________________________________________, ________________________________________, and ___________________________________. ________________________________________
 
53. If underapplied or overapplied factory overhead is immaterial, it is charged to ______________________________. ________________________________________
 
54. The performance measure that considers routine interruptions is known as ____________________ capacity. ________________________________________
 
55. A performance measure that encompasses a firms long-run average activity is referred to as ____________________ capacity. ________________________________________
 
56. A performance measure that assumes all production factors are operating perfectly is referred to as ____________________ capacity. ________________________________________
 
57. A performance measure that is short-run in nature and represents a firms anticipated activity level for the upcoming period is ____________________ capacity. ________________________________________
 
58. Consider the regression equation y = a + bX. The portion of the equation that represents fixed costs is __________. ________________________________________
 
59. Consider the regression equation y = a + bX. The portion of the equation that represents the variable rate is __________. ________________________________________
 
60. Consider the regression equation y = a + bX. The portion of the equation that represents the activity base is __________. ________________________________________
 
61. An observation that is found outside the relevant range is referred to as a(n) ____________________. ________________________________________
 
62. When a relationship between several independent variables and one dependent variable is analyzed, the regression is referred to as ____________________. ________________________________________
 
63. When a relationship between one independent variable and one dependent variable is analyzed, the regression is referred to as ____________________. ________________________________________
 
64. A ______________________________ is a planning document that presents expected variable and fixed overhead costs at different activity levels. ________________________________________
 
65. The costing technique that treats fixed manufacturing overhead as a period cost is referred to as ______________ or ____________ costing. ________________________________________
 
66. The costing technique that treats all manufacturing costs as inventoriable is referred to as _________________ or ___________ costing. ________________________________________
 
67. Sales less variable cost of goods sold is referred to as ________________________________________. ________________________________________
 
68. Temporary profits that result when absorption costing is used and production exceeds sales are referred to as _________________________. ________________________________________
 
69. Since overhead costs are indirect costs, A. they require some process of allocation.B. they can be easily traced to production.C. a predetermined overhead rate is not advantageous.D. they cannot be allocated.
 
70. Cost allocation is the assignment of ____ costs to one or more products using a reasonable basis.
direct
indirect

 A. yes        yesB. yes        noC. no          noD. no         yes
 
71. An actual cost system differs from a normal cost system in that an actual cost system A. assigns overhead as it occurs during the manufacturing cycle.B. assigns overhead at the end of the manufacturing process.C. does not assign overhead at all.D. does not use an Overhead Control account.
 
72. In a normal cost system, which of the following is used?
Actual direct materials
Actual direct labor
Actual overhead

 A. yes                     no             yesB. yes                     yes            yesC. yes                     yes            noD. no                      yes            no
 
73. Predetermined overhead rates are computed based on
estimated overhead costs
estimated level of activity

 A. yes                        yesB. yes                        noC. no                         yesD. no                         no
 
74. One reason annual overhead application rates are used is A. because of seasonal variability of overhead costs.B. to help budget overhead costs.C. to minimize the overhead cost assigned to products.D. to maximize the overhead cost assigned to products.
 
75. Which of the following is not a reason to use predetermined overhead rates? A. to overcome the problems of assigning overhead to diverse types of productsB. to compensate for fluctuations in monthly overhead costsC. to provide a means for assigning overhead during the period rather than at the end of the periodD. to smooth out the amount of overhead cost assigned to products when monthly production activity differs
 
76. When a manufacturing company has a highly automated manufacturing plant producing many different products, which of the following is the more appropriate basis of applying manufacturing overhead costs to work in process? A. direct labor hoursB. direct labor dollarsC. machine hoursD. cost of materials used
 
77. A mixed cost has which of the following components?
Variable component
Fixed component

 A. yes                 noB. yes                 yesC. no                  noD. no                  yes
 
78. In the formula y = a + bX, y represents A. fixed costs.B. total cost.C. variable costs.D. mixed costs.
 
79. In the formula y = a + bX, a represents A. mixed cost.B. variable cost.C. total cost.D. fixed cost.
 
80. In relationship to changes in activity, variable overhead changes
in total
per unit

 A. no      noB. no      yesC. yes     yesD. yes     no
 
81. In relationship to changes in activity, fixed overhead changes
in total
per unit

 A. yes    yesB. no     noC. no     yesD. yes    no
 
82. If the level of activity increases, A. variable cost per unit and total fixed costs increase.B. fixed cost per unit and total variable cost increase.C. total cost will increase and fixed cost per unit will decrease.D. variable cost per unit and total cost increase.
 
83. Weaknesses of the high-low method include all of the following except A. only two observations are used to develop the cost function.B. the high and low activity levels may not be representative.C. the method does not detect if the cost behavior is nonlinear.D. the mathematical calculations are relatively complex.
 
84. If there is no a value in a linear cost equation, this is an indication that the cost is A. fixed.B. mixed.C. variable.D. either fixed or mixed.
 
85. An outlier is A. something that happens outside the organization that does not affect production.B. always used in analyzing a mixed cost.C. something that happens inside the organization that does not affect production.D. typically not used in analyzing a mixed cost.
 
86. Applied overhead consists of which of the following? A. actual activity times predetermined overhead rateB. estimated activity times predetermined overhead rateC. actual activity times actual overhead rateD. estimated activity times actual overhead rate
 
87. If a company used two overhead accounts (actual overhead and applied overhead), the one that would receive the most debits would be A. actual overhead.B. applied overhead.C. both would receive an equal number of debits.D. impossible to determine without additional information.
 
88. If underapplied overhead is considered to be immaterial, it is closed to which of the following accounts?
Work in Process
Finished Goods
Cost of Goods Sold

 A. yes            yes              yesB. no             yes              yesC. yes            no               noD. no             no               yes
 
89. Overapplied overhead will result if A. the plant is operated at less than expected capacity.B. overhead costs incurred were greater than estimated overhead costs.C. overhead costs incurred were less than overhead costs charged to production.D. overhead costs incurred were greater than overhead charged to production.
 
90. Actual overhead exceeds applied overhead and the amount is immaterial. Which of the following will be true? Upon closing,
Overhead is
Cost of Goods Sold will

 A. underapplied            increaseB. overapplied              decreaseC. overapplied              increaseD. underapplied            decrease
 
91. If actual overhead is less than applied overhead, which of the following will be true? Upon closing,
Overhead is
Cost of Goods Sold is

 A. underapplied           creditedB. underapplied           debitedC. overapplied             debitedD. overapplied             credited
 
92. The estimated maximum potential activity for a specified time is: A. theoretical capacityB. practical capacityC. normal capacityD. expected capacity
 
93. The measure of activity that allows for routine variations in manufacturing activity is: A. theoretical capacityB. practical capacityC. normal capacityD. expected capacity
 
94. The measure of production that considers historical and estimated future production levels and cyclical fluctuations is referred to as: A. theoretical capacityB. practical capacityC. normal capacityD. expected capacity
 
95. A short-run measure of activity that represents a firms anticipated activity level for an upcoming period based upon expected demand is referred to as: A. theoretical capacityB. practical capacityC. normal capacityD. expected capacity
 
96. An item or event that has a cause-effect relationship with the incurrence of a variable cost is called a A. mixed cost.B. predictor.C. direct cost.D. cost driver.
 
97. Thibodeaux Tailors has gathered information on utility costs for the past year. The controller has decided that utilities are a function of the hours worked during the month. The following information is available and representative of the companys utility costs:
 
Hours worked
Utility cost incurred
Low point
1,300
$ 903
High point
1,680
1,074

If 1,425 hours are worked in a month, total utility cost (rounded to the nearest dollar) using the high-low method should be A. $947.B. $954.C. $959.D. $976.
 
98. Welch Corporation uses a predetermined overhead application rate of $.30 per direct labor hour. During the year it incurred $345,000 dollars of actual overhead, but it planned to incur $360,000 of overhead. The company applied $363,000 of overhead during the year. How many direct labor hours did the company plan to incur? A. 1,150,000B. 1,190,000C. 1,200,000D. 1,210,000
 
99. Machine Master, Inc. had the following data regarding monthly power costs:
Month
Machine hours
Power cost
Jan
300
$680
Feb
600
720
Mar
400
695
Apr
200
640

Assume that management expects 500 machine hours in May. Using the high-low method, calculate Mays power cost using machine hours as the basis for prediction. A. $700B. $705C. $710D. $1,320
 
100. Davis Corporation has developed the following flexible budget formula for monthly overhead:
For output of less than 200,000 units:
$36,600 + $.80(units)
For output of 200,000 units or more:
$43,000 + $.80(units)

How much overhead should Davis expect if the firm plans to produce 200,000 units? A. $52,600B. $59,000C. $196,600D. $203,000
 
101. Landon Corporation wishes to develop a single predetermined overhead rate. The companys expected annual fixed overhead is $340,000 and its variable overhead cost per machine hour is $2. The companys relevant range is from 200,000 to 600,000 machine hours. Landon expects to operate at 425,000 machine hours for the coming year. The plants theoretical capacity is 850,000. The predetermined overhead rate per machine hour should be A. $2.40.B. $2.57.C. $2.80.D. $2.85.
 
102. Lawson CorporationLawson Corporation has the following data for use of its machinery
Month
Usage
Cost
Jun
600
$750
Jul
650
775
Aug
420
550
Sept
500
650
Oct
450
570

Refer to Lawson Corporation. Using the high-low method, compute the variable cost element. A. $1.02B. $.98C. $1.31D. $1.19
 
103. Lawson CorporationLawson Corporation has the following data for use of its machinery
Month
Usage
Cost
Jun
600
$750
Jul
650
775
Aug
420
550
Sept
500
650
Oct
450
570

Refer to Lawson Corporation. Using the high-low method, compute the fixed cost element (to the nearest whole dollar). A. $225B. $138C. $411D. $364
 
104. Phoenix CorporationThe records of Phoenix Corporation revealed the following data for the current year.
Work in Process
$ 73,150
Finished Goods
115,000
Cost of Goods Sold
133,650
Direct Labor
111,600
Direct Material
84,200

Refer to Phoenix Corporation.  Assume, for this question only, actual overhead is $98,700 and applied overhead is $93,250. Manufacturing overhead is: A. overapplied by $12,900.B. underapplied by $18,350.C. overapplied by $5,450.D. underapplied by $5,450.
 
105. Phoenix CorporationThe records of Phoenix Corporation revealed the following data for the current year.
Work in Process
$ 73,150
Finished Goods
115,000
Cost of Goods Sold
133,650
Direct Labor
111,600
Direct Material
84,200

Refer to Phoenix Corporation. Assume that Phoenix has underapplied overhead of $37,200 and that this amount is material. What journal entry is needed to close the overhead account? (Round decimals to nearest whole percent.) A. Debit Work in Process $8,456; Finished Goods $13,294; Cost of Goods Sold $15,450 and credit Overhead $37,200B. Debit Overhead $37,200 and credit Work in Process $8,456; Finished Goods $13,294; Cost of Goods Sold $15,450C. Debit Work in Process $37,200 and credit Overhead $37,200D. Debit Cost of Goods Sold $37,200 and credit Overhead $37,200
 
106. Phoenix CorporationThe records of Phoenix Corporation revealed the following data for the current year.
Work in Process
$ 73,150
Finished Goods
115,000
Cost of Goods Sold
133,650
Direct Labor
111,600
Direct Material
84,200

Refer to Phoenix Corporation. Assume that Phoenix has underapplied overhead of $10,000 and that this amount is immaterial. What is the balance in Cost of Goods Sold after the underapplied overhead is closed? A. $133,650B. $123,650C. $143,650D. $137,803
 
107. Phoenix CorporationThe records of Phoenix Corporation revealed the following data for the current year.
Work in Process
$ 73,150
Finished Goods
115,000
Cost of Goods Sold
133,650
Direct Labor
111,600
Direct Material
84,200

Refer to Phoenix Corporation. Assume that Phoenix has overapplied overhead of $25,000 and that this amount is material. What is the balance in Cost of Goods Sold after the overapplied overhead is closed? A. $123,267B. $144,033C. $158,650D. $108,650
 
108. Ryan Corporation is relocating its facilities. The company estimates that it will take three trucks to move office contents. If the per truck rental charge is $1,000 plus 25 cents per mile, what is the expected cost to move 800 miles? A. $1,000B. $1,200C. $2,400D. $3,600
 
109. Texoma Trucking Company is exploring different prediction models that can be used to forecast indirect labor costs. One independent variable under consideration is machine hours. Following are matching observations on indirect labor costs and machine hours for the past six months:
Month
Machine hours
Indirect labor costs
1
300
$20,000
2
400
$24,000
3
240
$17,000
4
370
$22,000
5
200
$13,000
6
225
$14,000

In a high-low model, which months observations would be used to compute the models parameters? A. 2 and 5B. 1 and 6C. 2 and 6D. 4 and 5
 
110. Consider the following three product costing alternatives: process costing, job order costing, and standard costing. Which of these can be used in conjunction with absorption costing? A. job order costingB. standard costingC. process costingD. all of the above
 
111. Another name for absorption costing is A. full costing.B. direct costing.C. job order costing.D. fixed costing.
 
112. If a firm produces more units than it sells, absorption costing, relative to variable costing, will result in A. higher income and assets.B. higher income but lower assets.C. lower income but higher assets.D. lower income and assets.
 
113. Under absorption costing, fixed manufacturing overhead could be found in all of the following except the A. work-in-process account.B. finished goods inventory account.C. Cost of Goods Sold.D. period costs.
 
114. If a firm uses absorption costing, fixed manufacturing overhead will be included A. only on the balance sheet.B. only on the income statement.C. on both the balance sheet and income statement.D. on neither the balance sheet nor income statement.
 
115. Under absorption costing, if sales remain constant from period 1 to period 2, the company will report a larger income in period 2 when A. period 2 production exceeds period 1 production.B. period 1 production exceeds period 2 production.C. variable production costs are larger in period 2 than period 1.D. fixed production costs are larger in period 2 than period 1.
 
116. The FASB requires which of the following to be used in preparation of external financial statements? A. variable costingB. standard costingC. activity-based costingD. absorption costing
 
117. An ending inventory valuation on an absorption costing balance sheet would A. sometimes be less than the ending inventory valuation under variable costing.B. always be less than the ending inventory valuation under variable costing.C. always be the same as the ending inventory valuation under variable costing.D. always be greater than or equal to the ending inventory valuation under variable costing.
 
118. Absorption costing differs from variable costing in all of the following except A. treatment of fixed manufacturing overhead.B. treatment of variable production costs.C. acceptability for external reporting.D. arrangement of the income statement.
 
119. Which of the following is not associated with absorption costing? A. functional formatB. gross marginC. period costsD. contribution margin
 
120. Unabsorbed fixed overhead costs in an absorption costing system are A. fixed manufacturing costs not allocated to units produced.B. variable overhead costs not allocated to units produced.C. excess variable overhead costs.D. costs that cannot be controlled.
 
121. Profit under absorption costing may differ from profit determined under variable costing. How is this difference calculated? A. Change in the quantity of all units in inventory times the relevant fixed costs per unit.B. Change in the quantity of all units produced times the relevant fixed costs per unit.C. Change in the quantity of all units in inventory times the relevant variable cost per unit.D. Change in the quantity of all units produced times the relevant variable cost per unit.
 
122. What factor, related to manufacturing costs, causes the difference in net earnings computed using absorption costing and net earnings computed using variable costing? A. Absorption costing considers all costs in the determination of net earnings, whereas variable costing considers fixed costs to be period costs.B. Absorption costing allocates fixed overhead costs between cost of goods sold and inventories, and variable costing considers all fixed costs to be period costs.C. Absorption costing inventories all direct costs, but variable costing considers direct costs to be period costs.D. Absorption costing inventories all fixed costs for the period in ending finished goods inventory, but variable costing expenses all fixed costs.
 
123. The costing system that classifies costs by functional group only is A. standard costing.B. job order costing.C. variable costing.D. absorption costing.
 
124. A functional classification of costs would classify depreciation on office equipment as a A. product cost.B. general and administrative expense.C. selling expense.D. variable cost.
 
125. The costing system that classifies costs by both functional group and behavior is A. process costing.B. job order costing.C. variable costing.D. absorption costing.
 
126. Under variable costing, which of the following are costs that can be inventoried? A. variable selling and administrative expenseB. variable manufacturing overheadC. fixed manufacturing overheadD. fixed selling and administrative expense
 
127. Consider the following three product costing alternatives: process costing, job order costing, and standard costing. Which of these can be used in conjunction with variable costing? A. job order costingB. standard costingC. process costingD. all of them
 
128. Another name for variable costing is A. full costing.B. direct costing.C. standard costing.D. adjustable costing.
 
129. If a firm uses variable costing, fixed manufacturing overhead will be included A. only on the balance sheet.B. only on the income statement.C. on both the balance sheet and income statement.D. on neither the balance sheet nor income statement.
 
130. When variable costing is used, A. all product costs are considered to be variable.B. all period costs are considered to be variable.C. all product costs are considered to be fixed.D. product costs are separated into fixed and variable components.
 
131. How will a favorable volume variance affect net income under each of the following methods?
Absorption
Variable

 A. reduce      no effectB. reduce      increaseC. increase    no effectD. increase    reduce
 
132. Variable costing considers which of the following to be product costs?
FixedMfg. Costs
FixedSelling & Adm.
VariableMfg. Costs
VariableSelling & Adm.

 A. yes           no            yes          noB. yes           no            yes          yesC. no            no            yes          yesD. no            no            yes          no
 
133. The variable costing format is often more useful to managers than the absorption costing format because A. costs are classified by their behavior.B. costs are always lower.C. it is required for external reporting.D. it justifies higher product prices.
 
134. The difference between the reported income under absorption and variable costing is attributable to the difference in the A. income statement formats.B. treatment of fixed manufacturing overhead.C. treatment of variable manufacturing overhead.D. treatment of variable selling, general, and administrative expenses.
 
135. Which of the following costs will vary directly with the level of production? A. total manufacturing costsB. total period costsC. variable period costsD. variable product costs
 
136. On the variable costing income statement, the difference between the contribution margin and income before income taxes is equal to A. the total variable costs.B. the Cost of Goods Sold.C. total fixed costs.D. the gross margin.
 
137. For financial reporting to the IRS and other external users, manufacturing overhead costs are A. deducted in the period that they are incurred.B. inventoried until the related products are sold.C. treated like period costs.D. inventoried until the related products have been completed.
 
138. In the application of variable costing as a cost-allocation process in manufacturing, A. variable direct costs are treated as period costs.B. nonvariable indirect manufacturing costs are treated as product costs.C. variable indirect manufacturing costs are treated as product costs.D. nonvariable direct costs are treated as product costs.
 
139. A basic concept of variable costing is that period costs should be currently expensed. What is the rationale behind this procedure? A. Period costs are uncontrollable and should not be charged to a specific product.B. Period costs are generally immaterial in amount and the cost of assigning the amounts to specific products would outweigh the benefits.C. Allocation of period costs is arbitrary at best and could lead to erroneous decision by management.D. Because period costs will occur whether production occurs, it is improper to allocate these costs to production and defer a current cost of doing business.
 
140. Which of the following is a term more descriptive of the term direct costing? A. out-of-pocket costingB. variable costingC. relevant costingD. prime costing
 
141. What costs are treated as product costs under variable (direct) costing? A. only direct costsB. only variable production costsC. all variable costsD. all variable and fixed manufacturing costs
 
142. Which of the following must be known about a production process in order to institute a variable costing system? A. the variable and fixed components of all costs related to productionB. the controllable and non-controllable components of all costs related to productionC. standard production rates and times for all elements of productionD. contribution margin and break-even point for all goods in production
 
143. Why is variable costing not in accordance with generally accepted accounting principles? A. Fixed manufacturing costs are treated as period costs under variable costing.B. Variable costing procedures are not well known in industry.C. Net earnings are always overstated when using variable costing procedures.D. Variable costing ignores the concept of lower of cost or market when valuing inventory.
 
144. Which of the following is an argument against the use of direct (variable) costing? A. Absorption costing overstates the balance sheet value of inventories.B. Variable factory overhead is a period cost.C. Fixed manufacturing overhead is difficult to allocate properly.D. Fixed manufacturing overhead is necessary for the production of a product.
 
145. Which of the following statements is true for a firm that uses variable costing? A. The cost of a unit of product changes because of changes in the number of units manufactured.B. Profits fluctuate with sales.C. An idle facility variation is calculated.D. None of the above.
 
146. An income statement is prepared as an internal report. Under which of the following methods would the term contribution margin appear?
Absorption costing
Variable costing

 A.   no                 noB.   no                 yesC.   yes                noD.   yes                yes
 
147. In an income statement prepared as an internal report using the variable costing method, fixed manufacturing overhead would A. not be used.B. be used in the computation of operating income but not in the computation of the contribution margin.C. be used in the computation of the contribution margin.D. be treated the same as variable manufacturing overhead.
 
148. Variable costing has an advantage over absorption costing for which of the following purposes? A. analysis of profitability of products, territories, and other segments of a businessB. determining the CVP relationship among the major factors of selling price, sales mix, and sales volumeC. minimizing the effects of inventory changes on net incomeD. all of the above
 
149. In the variable costing income statement, which line separates the variable and fixed costs? A. selling expensesB. general and administrative expenseC. product contribution marginD. total contribution margin
 
150. A firm presently has total sales of $100,000. If its sales rise, its A. net income based on variable costing will go up more than its net income based on absorption costing.B. net income based on absorption costing will go up more than its net income based on variable costing.C. fixed costs will also rise.D. per unit variable costs will rise.
 
151. Wyatt CorporationWyatt Corporation has the following standard costs associated with the manufacture and sale of one of its products:
Direct material
$3.00 per unit
Direct labor
2.50 per unit
Variable manufacturing overhead
1.80 per unit
Fixed manufacturing overhead
4.00 per unit (based on an estimate
 
                   of 50,000 units per year)
Variable selling expenses
.25 per unit
Fixed SG&A expense
$75,000 per year
 
 
During its first year of operations Wyatt manufactured 51,000 units and sold 48,000. The selling price per unit was $25. All costs were equal to standard.

Refer to Wyatt Corporation. Under absorption costing, the standard production cost per unit for the current year was A. $ 7.30.B. $11.30.C. $11.55.D. $13.05.
 
152. Wyatt CorporationWyatt Corporation has the following standard costs associated with the manufacture and sale of one of its products:
Direct material
$3.00 per unit
Direct labor
2.50 per unit
Variable manufacturing overhead
1.80 per unit
Fixed manufacturing overhead
4.00 per unit (based on an estimate
 
                   of 50,000 units per year)
Variable selling expenses
.25 per unit
Fixed SG&A expense
$75,000 per year
 
 
During its first year of operations Wyatt manufactured 51,000 units and sold 48,000. The selling price per unit was $25. All costs were equal to standard.

Refer to Wyatt Corporation. The volume variance under absorption costing is A. $8,000 F.B. $4,000 F.C. $4,000 U.D. $8,000 U.
 
153. Wyatt CorporationWyatt Corporation has the following standard costs associated with the manufacture and sale of one of its products:
Direct material
$3.00 per unit
Direct labor
2.50 per unit
Variable manufacturing overhead
1.80 per unit
Fixed manufacturing overhead
4.00 per unit (based on an estimate
 
                   of 50,000 units per year)
Variable selling expenses
.25 per unit
Fixed SG&A expense
$75,000 per year
 
 
During its first year of operations Wyatt manufactured 51,000 units and sold 48,000. The selling price per unit was $25. All costs were equal to standard.

Refer to Wyatt Corporation. Under variable costing, the standard production cost per unit for the current year was A. $11.30.B. $7.30.C. $7.55.D. $11.55.
 
154. Wyatt CorporationWyatt Corporation has the following standard costs associated with the manufacture and sale of one of its products:
Direct material
$3.00 per unit
Direct labor
2.50 per unit
Variable manufacturing overhead
1.80 per unit
Fixed manufacturing overhead
4.00 per unit (based on an estimate
 
                   of 50,000 units per year)
Variable selling expenses
.25 per unit
Fixed SG&A expense
$75,000 per year
 
 
During its first year of operations Wyatt manufactured 51,000 units and sold 48,000. The selling price per unit was $25. All costs were equal to standard.

Refer to Wyatt Corporation. Based on variable costing, the income before income taxes for the year was A. $570,600.B. $560,000.C. $562,600.D. $547,500.
 
155. Richardson CompanyThe following information is available for Richardson Company for its first year of operations:
Sales in units
5,000
Production in units
8,000
Manufacturing costs:
 
    Direct labor
$3 per unit
    Direct material
$5 per unit
    Variable overhead
$1 per unit
    Fixed overhead
$100,000
Net income (absorption method)
$30,000
Sales price per unit
$40

Refer to Richardson Company. If Richardson Company had used variable costing, what amount of income before income taxes would it have reported? A. $30,000B. ($7,500)C. $67,500D. cannot be determined from the information given
 
156. Richardson CompanyThe following information is available for Richardson Company for its first year of operations:
Sales in units
5,000
Production in units
8,000
Manufacturing costs:
 
    Direct labor
$3 per unit
    Direct material
$5 per unit
    Variable overhead
$1 per unit
    Fixed overhead
$100,000
Net income (absorption method)
$30,000
Sales price per unit
$40

Refer to Richardson Company. What was the total amount of Selling,General and Administrative expense incurred by Richardson Company? A. $30,000B. $62,500C. $6,000D. cant be determined from the information given
 
157. Richardson CompanyThe following information is available for Richardson Company for its first year of operations:
Sales in units
5,000
Production in units
8,000
Manufacturing costs:
 
    Direct labor
$3 per unit
    Direct material
$5 per unit
    Variable overhead
$1 per unit
    Fixed overhead
$100,000
Net income (absorption method)
$30,000
Sales price per unit
$40

Refer to Richardson Company. If Richardson Company were using variable costing, what would it show as the value of ending inventory? A. $120,000B. $64,500C. $27,000D. $24,000
 
158. Truman CorporationThe following information has been extracted from the financial records of Truman Corporation for its first year of operations:
Units produced
10,000
Units sold
7,000
Variable costs per unit:
 
    Direct material
$8
    Direct labor
9
    Manufacturing overhead
3
    SG&A
4
Fixed costs:
 
    Manufacturing overhead
$70,000
    SG&A
30,000

Refer to Truman Corporation. Based on absorption costing, Truman Corporations income in its first year of operations will be A. $21,000 higher than it would be under variable costing.B. $70,000 higher than it would be under variable costing.C. $30,000 higher than it would be under variable costing.D. higher than it would be under variable costing, but the exact difference cannot be determined from the information given.
 
159. Truman CorporationThe following information has been extracted from the financial records of Truman Corporation for its first year of operations:
Units produced
10,000
Units sold
7,000
Variable costs per unit:
 
    Direct material
$8
    Direct labor
9
    Manufacturing overhead
3
    SG&A
4
Fixed costs:
 
    Manufacturing overhead
$70,000
    SG&A
30,000

Refer to Truman Corporation. Based on absorption costing, the Cost of Goods Manufactured for Truman Corporations first year would be A. $200,000.B. $270,000.C. $300,000.D. $210,000.
 
160. Truman CorporationThe following information has been extracted from the financial records of Truman Corporation for its first year of operations:
Units produced
10,000
Units sold
7,000
Variable costs per unit:
 
    Direct material
$8
    Direct labor
9
    Manufacturing overhead
3
    SG&A
4
Fixed costs:
 
    Manufacturing overhead
$70,000
    SG&A
30,000

Refer to Truman Corporation. Based on absorption costing, what amount of period costs will Truman Corporation deduct? A. $70,000B. $79,000C. $30,000D. $58,000
 
161. For its most recent fiscal year, a firm reported that its contribution margin was equal to 40 percent of sales and that its net income amounted to 10 percent of sales. If its fixed costs for the year were $60,000, how much were sales? A. $150,000B. $200,000C. $600,000D. cant be determined from the information given
 
162. At its present level of operations, a small manufacturing firm has total variable costs equal to 75 percent of sales and total fixed costs equal to 15 percent of sales. Based on variable costing, if sales change by $1.00, income will change by A. $0.25.B. $0.10.C. $0.75.D. cant be determined from the information given.
 
163. The following information regarding fixed production costs from a manufacturing firm is available for the current year:
Fixed costs in the beginning inventory
$ 16,000
Fixed costs incurred this period
100,000

Which of the following statements is not true? A. The maximum amount of fixed production costs that this firm could deduct using absorption costs in the current year is $116,000.B. The maximum difference between this firms the current year income based on absorption costing and its income based on variable costing is $16,000.C. Using variable costing, this firm will deduct no more than $16,000 for fixed production costs.D. If this firm produced substantially more units than it sold in the current year, variable costing will probably yield a lower income than absorption costing.
 
164. Ellis CorporationThe following information was extracted from the first year absorption-based accounting records of Ellis Corporation
Total fixed costs incurred
$100,000
Total variable costs incurred
50,000
Total period costs incurred
70,000
Total variable period costs incurred
30,000
Units produced
20,000
Units sold
12,000
Unit sales price
$12

Refer to Ellis Corporation. What is Cost of Goods Sold for Ellis Corporations first year? A. $80,000B. $90,000C. $48,000D. cant be determined from the information given
 
165. Ellis CorporationThe following information was extracted from the first year absorption-based accounting records of Ellis Corporation
Total fixed costs incurred
$100,000
Total variable costs incurred
50,000
Total period costs incurred
70,000
Total variable period costs incurred
30,000
Units produced
20,000
Units sold
12,000
Unit sales price
$12

Refer to Ellis Corporation. If Ellis Corporation had used variable costing in its first year of operations, how much income (loss) before income taxes would it have reported? A. ($6,000)B. $54,000C. $26,000D. $  2,000
 
166. Ellis CorporationThe following information was extracted from the first year absorption-based accounting records of Ellis Corporation
Total fixed costs incurred
$100,000
Total variable costs incurred
50,000
Total period costs incurred
70,000
Total variable period costs incurred
30,000
Units produced
20,000
Units sold
12,000
Unit sales price
$12

Refer to Ellis Corporation. Based on variable costing, if Ellis had sold 12,001 units instead of 12,000, its income before income taxes would have been A. $9.50 higher.B. $11.00 higher.C. $8.50 higher.D. $8.33 higher.
 
167. Rosewood CorporationRosewood Corporation produces a single product. The following cost structure applied to its first year of operations:
Variable costs:
 
    SG&A
$2 per unit
    Production
$4 per unit
Fixed costs (total cost incurred for the year):
 
    SG&A
$14,000
    Production
$20,000

Refer to Rosewood Corporation. Assume for this question only that during the current year Rosewood Corporation manufactured 5,000 units and sold 3,800. There was no beginning or ending work-in-process inventory. How much larger or smaller would Rosewood Corporations income be if it uses absorption rather than variable costing? A. The absorption costing income would be $6,000 larger.B. The absorption costing income would be $6,000 smaller.C. The absorption costing income would be $4,800 larger.D. The absorption costing income would be $4,000 smaller.
 
168. Rosewood CorporationRosewood Corporation produces a single product. The following cost structure applied to its first year of operations:
Variable costs:
 
    SG&A
$2 per unit
    Production
$4 per unit
Fixed costs (total cost incurred for the year):
 
    SG&A
$14,000
    Production
$20,000

Refer to Rosewood Corporation. Assume for this question only that Rosewood Corporation manufactured and sold 5,000 units in the current year. At this level of activity it had an income of $30,000 using variable costing. What was the sales price per unit? A. $16.00B. $18.80C. $12.80D. $14.80
 
169. Rosewood CorporationRosewood Corporation produces a single product. The following cost structure applied to its first year of operations:
Variable costs:
 
    SG&A
$2 per unit
    Production
$4 per unit
Fixed costs (total cost incurred for the year):
 
    SG&A
$14,000
    Production
$20,000

Refer to Rosewood Corporation. Assume for this question only that Rosewood Corporation produced 5,000 units and sold 4,500 units in the current year. If Rosewood uses absorption costing, it would deduct period costs of A. $24,000.B. $34,000.C. $27,000.D. $23,000.
 
170. Rosewood CorporationRosewood Corporation produces a single product. The following cost structure applied to its first year of operations:
Variable costs:
 
    SG&A
$2 per unit
    Production
$4 per unit
Fixed costs (total cost incurred for the year):
 
    SG&A
$14,000
    Production
$20,000

Refer to Rosewood Corporation. Assume for this question only that Rosewood Corporation manufactured 5,000 units and sold 4,000 in the current year. If Rosewood employs a costing system based on variable costs, the company would end the current year with a finished goods inventory of A. $4,000.B. $8,000.C. $6,000.D. $5,000.
 
171. Delta, Epilson, and Sigma CompaniesThree new companies (Delta, Epilson, and Sigma) began operations on January 1 of the current year. Consider the following operating costs that were incurred by these companies during the complete calendar year:
 
Delta Company
Epsilon Company
Sigma Company
Production in units
10,000
10,000
10,000
Sales price per unit
$10
$10
$10
Fixed production costs
$10,000
$20,000
$30,000
Variable production costs
$30,000
$20,000
$10,000
Variable SG&A
$1/unit
$2/unit
$3/unit
Fixed SG&A
$30,000
$20,000
$10,000

Refer to Delta, Epilson, and Sigma Companies. Based on sales of 7,000 units, which company will report the greater income before income taxes if absorption costing is used? A. Delta CompanyB. Epsilon CompanyC. Sigma CompanyD. All of the companies will report the same income.
 
172. Delta, Epilson, and Sigma CompaniesThree new companies (Delta, Epilson, and Sigma) began operations on January 1 of the current year. Consider the following operating costs that were incurred by these companies during the complete calendar year:
 
Delta Company
Epsilon Company
Sigma Company
Production in units
10,000
10,000
10,000
Sales price per unit
$10
$10
$10
Fixed production costs
$10,000
$20,000
$30,000
Variable production costs
$30,000
$20,000
$10,000
Variable SG&A
$1/unit
$2/unit
$3/unit
Fixed SG&A
$30,000
$20,000
$10,000

Refer to Delta, Epilson, and Sigma Companies. Based on sales of 7,000 units, which company will report the greater income before income taxes if variable costing is used? A. Delta CompanyB. Epsilon CompanyC. Sigma CompanyD. All of the companies will report the same income.
 
173. Delta, Epilson, and Sigma CompaniesThree new companies (Delta, Epilson, and Sigma) began operations on January 1 of the current year. Consider the following operating costs that were incurred by these companies during the complete calendar year:
 
Delta Company
Epsilon Company
Sigma Company
Production in units
10,000
10,000
10,000
Sales price per unit
$10
$10
$10
Fixed production costs
$10,000
$20,000
$30,000
Variable production costs
$30,000
$20,000
$10,000
Variable SG&A
$1/unit
$2/unit
$3/unit
Fixed SG&A
$30,000
$20,000
$10,000

Refer to Delta, Epilson, and Sigma Companies. Based on sales of 10,000 units, which company will report the greater income before income taxes if variable costing is used? A. Delta CompanyB. Epsilon CompanyC. Sigma CompanyD. All of the companies will report the same income before income taxes.
 
174. A firm has fixed costs of $200,000 and variable costs per unit of $6. It plans on selling 40,000 units in the coming year. To realize a profit of $20,000, the firm must have a sales price per unit of at least A. $11.00.B. $11.50.C. $10.00.D. $10.50.
 
175. Hahn CorporationHahn Corporation produces a single product that sells for $7.00 per unit. Standard capacity is 100,000 units per year; 100,000 units were produced and 80,000 units were sold during the year. Manufacturing costs and selling and administrative expenses are presented below.There were no variances from the standard variable costs. Any under- or overapplied overhead is written off directly at year-end as an adjustment to cost of goods sold.
 
Fixed costs
Variable costs
Direct material
$0
$1.50 per unit produced
Direct labor
  0
1.00 per unit produced
Manufacturing overhead
$150,000
0.50 per unit produced
Selling & Administration expense
80,000
           0.50 per unit sold

Hahn Corporation had no inventory at the beginning of the year. Refer to Hahn Corporation. In presenting inventory on the balance sheet at December 31, the unit cost under absorption costing is A. $2.50.B. $3.00.C. $3.50.D. $4.50.
 
176. Hahn CorporationHahn Corporation produces a single product that sells for $7.00 per unit. Standard capacity is 100,000 units per year; 100,000 units were produced and 80,000 units were sold during the year. Manufacturing costs and selling and administrative expenses are presented below.There were no variances from the standard variable costs. Any under- or overapplied overhead is written off directly at year-end as an adjustment to cost of goods sold.
 
Fixed costs
Variable costs
Direct material
$0
$1.50 per unit produced
Direct labor
  0
1.00 per unit produced
Manufacturing overhead
$150,000
0.50 per unit produced
Selling & Administration expense
80,000
           0.50 per unit sold

Hahn Corporation had no inventory at the beginning of the year. Refer to Hahn Corporation. What is the net income under variable costing? A. $50,000B. $80,000C. $90,000D. $120,000
 
177. Hahn CorporationHahn Corporation produces a single product that sells for $7.00 per unit. Standard capacity is 100,000 units per year; 100,000 units were produced and 80,000 units were sold during the year. Manufacturing costs and selling and administrative expen

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