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COST ACCOUNTING 13 EDITION HORNGREN (CHAPTER 9 QUIZ AND EXERCISES) CHAPTER 9 INVENTORY COSTING AND CAPACITY ANALYSIS (INSTANT DOWNLOAD)

COST ACCOUNTING 13 EDITION HORNGREN (CHAPTER 9 QUIZ AND EXERCISES) CHAPTER 9 INVENTORY COSTING AND CAPACITY ANALYSIS  (INSTANT DOWNLOAD)
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Accounting

Cost Accounting 13/e

Horngren, Foster, Datar, Rajan & Ittner

 

CHAPTER 9 QUIZ

 

1.       The main difference between variable costing and absorption costing is

 

a.   the treatment of nonman            ufacturing costs.

a.       the accounting for variable manufacturing costs.

b.       the accounting for fixed manufacturing costs.

c.       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 2001, its first year of operations.   Variable manufacturing costs were $30 per unit of product.  Planned and actual fixed manufacturing costs were $600,000, and marketing and administrative costs totaled $400,000 in 2001.  Alvin sold 120,000 units of product in 2001 at a selling price of $40 per unit.

 

2.       [CMA Adapted]  Alvin’s 2001 operating income using variable costing is

 

a.  $800,000.           b.  $600,000.                 c.  $440,000.                 d.  $200,000.

 

3.       [CMA Adapted]  Alvin’s 2001 operating income using absorption costing is

 

a.  $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 higher

 

  1. when the quantity of beginning inventory equals the quantity of ending inventory.
  2. when the quantity of beginning inventory is more than the quantity of ending inventory.
  3. when the quantity of beginning inventory is less than the quantity of ending inventory.
  4. under no circumstances.

 

5.       Absorption costing enables managers to increase operating income in the short run by changing production schedules.  Which statement is true regarding such action?

 

  1. The reason for increased operating income is the deferral of fixed manufacturing overhead contained in unsold inventory.
  2. A desirable effect of these changes in production is “cherry picking” the production line.
  3. This is done through decreases in the production schedule as customer demand for product falls.
  4. None of the above statements are true regarding manager’s action to increase operating income through changes in the production schedule.

 

6.       The proponents of throughput costing

 

  1. maintain that variable costing undervalues inventories.
  2. maintain that it provides more incentive to produce for inventory than do either variable or absorption costing.
  3. 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.
  4. 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?

 

  1. Master-budget utilization
  2. Practical capacity
  3. Theoretical capacity
  4. Normal utilization

 

8.       Use of capacity levels based on demand

 

  1. hides the amount of unused capacity.
  2. highlights the cost of capacity acquired but not used.
  3. yields a cost rate that does not include a charge for unused capacity.
  4. results in a price that covers the cost of capacity customers expect to pay.

 

9.       A company may experience the downward demand spiral when

 

  1. the use of theoretical capacity as a denominator-level has contributed to budgets that project sales to be higher than actually attainable.
  2. spreading capacity costs over a small number of units and setting selling prices even higher to recover those costs.
  3. engaged in a cyclical business and after experiencing an upturn.
  4. 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?

 

  1. Proration approach
  2. Adjusted allocation-rate approach
  3. Theoretical approach
  4. Write-off variances to cost of goods sold approach

 

11.   Under a variable costing system, the breakeven point is a function of

 

     Sales Volume           Production Volume

      a.               Yes                              Yes

      b.               No                                Yes

      c.               No                                No

      d.               Yes                              No

 

12.   Under an absorption costing system, the breakeven point is a function of

 

     Sales Volume           Production Volume

     a.                Yes                              Yes

     b.                No                                Yes

     c.                Yes                              No

     d.                No                                No

 

 

 

WRITING/DISCUSSION EXERCISES

 

1.      Identify what distinguishes variable costing from absorption costing

 

What is the background of the concept of variable costing? 


2.      Prepare income statements under absorption costing and variable costing

 

Compare the assumptions made for the text example of Stassen Company (year 2003) for preparation of absorption and variable costing income statements and the assumptions made for the cost-volume-profit model in Chapter 3.  Which of the assumptions is not stated about CVP because it is not critical to the calculation of income on a variable costing basis but is a critical assumption when comparing variable to absorption costing?  


3.      Explain differences in operating income under absorption costing and variable costing

 

The authors of the text note that by keeping inventory levels low, the differences between absorption costing and variable costing become less in amount.  What other factors could minimize the differences between these two types of costing inventory?  

 

4.      Understand how absorption costing can provide undesirable incentives for managers

 

Discuss the importance of setting appropriate performance criteria for managers

 

5.      Differentiate throughput costing from variable costing and absorption costing

 

Throughput costing would seem best suited to what time frame? 

 

6.      Describe the various capacity concepts that can be used in absorption costing

 

The authors note that “engineering and human resource factors are both important when estimating theoretical or practical capacity.” How can managers discern human resource factors in estimating supply-based capacity? 

 

7.      Understand the major factors management considers in choosing a capacity level to compute the budgeted fixed overhead cost rate

 

Do companies have varying levels of capacity at any one time?  How flexible is capacity that is defined in the text as a “constraint” or “upper limit”? 

 

8.       Describe how attempts to recover fixed costs of capacity may lead to price increases and lower demand

 

Discuss the value of creating “capacity” in smaller increments as opposed to one super-sized unit.  

 

9.       Explain how the choice of the denominator level affects the production-volume variance

 

Apply the saying that “inside the solution to one problem are other problems just waiting to get out” to the choice of a denominator-level capacity concept.  

 

Demonstration Problem for Use with Text Problem 9-33

Comparison of Variable and Absorption Costing

 

Required:

1.       As a member of the board, what comments would you make at the next meeting regarding the most recent income statement?  Maximum production capacity is 40,000,000 units per year.

2.       Would you change your remarks in (1) if (consider each part independently):

a.       Sales outlook for the coming three years is 20,000,000 units per year?

b.       Sales outlook for the coming three years is 30,000,000 units per year?

c.        Sales outlook for the coming three years is 40,000,000 units per year?

d.       The company is to be liquidated immediately, so that the only sales in 2004 will be the 5,000,000 units still in inventory?

e.        The sales outlook for 2004 is 45,000,000 units?

3.       Assuming that the $140,000 bonus is paid, would you favor a similar arrangement for the next president?  If not, and you were outvoted, what changes in a bonus contract would you try to have adopted?



FILE: MS WORD

 

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