Deck 8: Absorption and Variable Costing, and Inventory Management

Question 1

Total inventory-related cost consists of ordering cost and carrying cost.

Answer 1

True

Question 2

A major drawback to the JIT inventory approach is that it increases carrying costs.

Answer 2

False

Question 3

Match the type of income statement to the costs it includes.
a.Variable costing income statement
b.Absorption costing income statement
c.Both types of income statements
Fixed factory overhead for the period

Answer 3

A

Question 4

Inventory costs under variable costing include only direct materials, direct labor, and variable factory overhead.

Question 5

Match the type of income statement to the costs it includes.
a.Variable costing income statement
b.Absorption costing income statement
c.Both types of income statements
Variable overhead for units sold

Question 6

Inventory under absorption costing includes only direct materials and direct labor.

Question 7

Match the type of income statement to the costs it includes.
a.Variable costing income statement
b.Absorption costing income statement
c.Both types of income statements
Fixed selling expense

Question 8

If the number of units produced in a period is larger than the number of units sold in a period, absorption costing income will be higher than variable costing income.

Question 9

Variable costing and absorption costing income statements may differ because of their treatment of fixed factory overhead.

Question 10

Match the type of income statement to the costs it includes.
a.Variable costing income statement
b.Absorption costing income statement
c.Both types of income statements
Variable selling expense

Question 11

The costs of not having a product available when demanded by a customer are called stockout costs.

Question 12

Match the type of income statement to the costs it includes.
a.Variable costing income statement
b.Absorption costing income statement
c.Both types of income statements
Only fixed factory overhead for units sold

Question 13

Match the type of income statement to the costs it includes.
a.Variable costing income statement
b.Absorption costing income statement
c.Both types of income statements
Direct labor for units sold

Question 14

Match the type of income statement to the costs it includes.
a.Variable costing income statement
b.Absorption costing income statement
c.Both types of income statements
Administrative expense

Question 15

Match each statement with the correct item below.
a.the costs of not having a product available when demanded by a customer
b.the costs of carrying inventory
c.approach that maintains goods should be pulled through the system by present demand
d.the number of units in the order quantity that minimizes the total cost
e.the costs of placing and receiving an order
Carrying costs

Question 16

JIT relies on a push system to control finished good inventory.

Question 17

Product cost includes all costs of the company.

Question 18

Match the type of income statement to the costs it includes.
a.Variable costing income statement
b.Absorption costing income statement
c.Both types of income statements
Direct materials for units sold

Question 19

If the number of units produced in a period is smaller than the number of units sold in period, absorption costing income will be higher than variable costing income.

Question 20

On a segmented income statement, fixed costs are broken down into direct fixed costs and common fixed costs.

Question 21

The _______________ income statement groups expenses according to cost behavior.

Question 22

Variable costing treats fixed factory overhead as a ______________.

Question 23

On a segmented income statement, fixed expenses are broken down into _____________ and ______________.

Question 24

All ______________ expenses will vanish if a particular segment is eliminated.

Question 25

When using _______________ a company only assigns variable manufacturing costs to the product.

Question 26

Inventory taxes, obsolescence, and insurance are examples of _______________.

Question 27

Match each statement with the correct item below.
a.the costs of not having a product available when demanded by a customer
b.the costs of carrying inventory
c.approach that maintains goods should be pulled through the system by present demand
d.the number of units in the order quantity that minimizes the total cost
e.the costs of placing and receiving an order
Just-in-time

Question 28

The _______________________ is the number of units in the optimal size order quantity.

Question 29

Match each statement with the correct item below.
a.the costs of not having a product available when demanded by a customer
b.the costs of carrying inventory
c.approach that maintains goods should be pulled through the system by present demand
d.the number of units in the order quantity that minimizes the total cost
e.the costs of placing and receiving an order
Ordering costs

Question 30

Expenses that persist even if one of the segments to which they relate is eliminated are known as ________________.

Question 31

Match each statement with the correct item below.
a.the costs of not having a product available when demanded by a customer
b.the costs of carrying inventory
c.approach that maintains goods should be pulled through the system by present demand
d.the number of units in the order quantity that minimizes the total cost
e.the costs of placing and receiving an order
_______________ assigns all manufacturing costs to the product.

Question 32

A ____________ is a subunit of a company of sufficient importance to warrant the production of performance reports.

Question 33

Lost sales and costs of expediting shipments of goods are examples of _______________.

Question 34

Match each statement with the correct item below.
a.the costs of not having a product available when demanded by a customer
b.the costs of carrying inventory
c.approach that maintains goods should be pulled through the system by present demand
d.the number of units in the order quantity that minimizes the total cost
e.the costs of placing and receiving an order
Economic order quantity

Question 35

Absorption costing treats fixed factory overhead as a ____________.

Question 36

The ___________________ income statement groups expenses according to function.

Question 37

Generally accepted accounting principles require ______________ for external reporting.

Question 38

For internal reporting ________________ is an important managerial tool because it provides vital cost information for decision making and control.

Question 39

The profit contribution each segment makes toward covering a company's common fixed costs is called ______________.

Question 40

Match each statement with the correct item below.
a.the costs of not having a product available when demanded by a customer
b.the costs of carrying inventory
c.approach that maintains goods should be pulled through the system by present demand
d.the number of units in the order quantity that minimizes the total cost
e.the costs of placing and receiving an order
Stockout costs

Question 41

________________ is the time required to receive the economic order quantity once an order is placed.

Question 42

A disadvantage of absorption costing is

A) that it is not a useful format for decision making.
B) that it assigns only manufacturing costs to the product.
C) All of these.
D) None of these.

Question 43

Gross margin is to absorption costing as ____ is to variable costing.

A) gross profit
B) contribution margin
C) income
D) territory margin

Question 44

What is the primary difference between variable and absorption costing?

A) inclusion of fixed selling expenses in product costs
B) inclusion of variable factory overhead in period costs
C) inclusion of fixed selling expenses in period costs
D) inclusion of fixed factory overhead in product costs

Question 45

The ______________ approach maintains that goods should be pulled through the system by present demand rather than being pushed through on a fixed schedule based on anticipated demand.

Question 46

When production is less than sales volume, income under absorption costing will be ____ income using variable costing procedures.

A) greater than
B) less than
C) equal to
D) randomly different than

Question 47

Which of the following types of costs is a product cost for absorption costing but a period cost for variable costing?

A) direct materials
B) direct labor
C) fixed factory overhead per unit sold
D) variable selling expense
E) total administrative expense

Question 48

Last year, Fabre Company produced 20,000 units and sold 18,000 units at a price of $12. Costs for last year were as follows:
Fixed factory overhead is applied based on expected production. Last year, Fabre expected to produce 20,000 units.
Refer to Figure 8-1. What is operating income for last year under absorption costing?

A) $41,000
B) $67,520
C) $85,900
D) $111,300
E) $45,000

Question 49

Inventory values calculated using variable costing as opposed to absorption costing will generally be

A) equal.
B) less.
C) greater.
D) twice as much.

Question 50

Generally Accepted Accounting Principles (GAAP) require the use of which accounting method for external reporting?

A) absorption costing.
B) variable costing.
C) transfer price costing.
D) responsibility costing.
E) all of these are acceptable for GAAP.

Question 51

Last year, Fabre Company produced 20,000 units and sold 18,000 units at a price of $12. Costs for last year were as follows:
Fixed factory overhead is applied based on expected production. Last year, Fabre expected to produce 20,000 units.
Refer to Figure 8-1. Assuming that beginning inventory was zero, what is the value of ending inventory under variable costing?

A) $3,300
B) $2,500
C) $5,000
D) $3,720
E) $7,200

Question 52

______________ is computed by multiplying the lead time by the difference between the maximum rate of usage and the average rate of usage.

Question 53

All of the following costs are included in inventory under absorption costing except

A) direct materials.
B) direct labor.
C) fixed selling expenses.
D) fixed factory overhead.

Question 54

Which of the following is never included in product cost?

A) overhead
B) direct materials
C) variable selling expense
D) fixed factory overhead
E) direct labor

Question 55

Last year, Fabre Company produced 20,000 units and sold 18,000 units at a price of $12. Costs for last year were as follows:
Fixed factory overhead is applied based on expected production. Last year, Fabre expected to produce 20,000 units.
Refer to Figure 8-1. What is operating income for last year under variable costing?

A) $111,800
B) $91,780
C) $82,200
D) $78,400
E) $66,350

Question 56

When a company needs to place a new order for goods, they have reached the ___________.

Question 57

Last year, Fabre Company produced 20,000 units and sold 18,000 units at a price of $12. Costs for last year were as follows:
Fixed factory overhead is applied based on expected production. Last year, Fabre expected to produce 20,000 units.
Refer to Figure 8-1. Assuming that beginning inventory was zero, what is the value of ending inventory under absorption costing?

A) $5,480
B) $4,500
C) $10,900
D) $12,600
E) $5,750

Question 58

When monthly production volume is constant and sales volume is less than production, income determined with variable costing procedures will

A) always be greater than income determined using absorption costing.
B) always be less than income determined using absorption costing.
C) be equal to income determined using absorption costing.
D) be equal to contribution margin per unit times units sold.

Question 59

Which of the following statements is true?

A) Absorption costing income exceeds variable costing income when units produced and sold are equal.
B) Variable costing income exceeds absorption costing income when units produced exceed units sold.
C) Absorption costing income exceeds variable costing income when units produced are less than units sold.
D) Absorption costing income exceeds variable costing income when units produced are greater than units sold.

Question 60

Variable costing is

A) a good way to value inventories for the balance sheet.
B) used for external reporting purposes.
C) not useful for companies with multiple segments.
D) a useful tool for management decision making.
E) can only be used by start-up companies.

Question 61

The following information pertains to Mayberry Corporation:

Refer to Figure 8-4. What is the value of the ending inventory using the absorption costing method?

A) $240,000
B) $360,000
C) $600,000
D) $420,000

Question 62

Ramon Company reported the following units of production and sales for June and July:
Income under absorption costing for June was $40,000; income under variable costing for July was $50,000. Fixed costs were $600,000 for each month.
Refer to Figure 8-7. How much was income for July using absorption costing?

A) $50,000
B) $20,000
C) $80,000
D) $40,000

Question 63

Bailey Company incurred the following costs in manufacturing desk calculators:
During the period, the company produced and sold 2,000 units.
Refer to Figure 8-6. What is the inventory cost per unit using absorption costing?

A) $104
B) $77
C) $84
D) $32

Question 64

The following information pertains to Mayberry Corporation:

Refer to Figure 8-4. Absorption costing income would be ____ variable costing income.

A) $150,000 greater than
B) $150,000 less than
C) $240,000 less than
D) $240,000 greater than

Question 65

Loring Company had the following data for the month:
Fixed overhead is $4,000 per month; it is applied to production based on normal activity of 2,000 units. During the month, 2,000 units were produced. Loring started the month with 300 units in beginning inventory, with unit product cost equal to this month's unit product cost. A total of 2,100 units were sold during the month at price of $14. Selling and administrative expense for the month, all fixed, totaled $3,600.
Refer to Figure 8-2. What is the unit product cost under absorption costing?

A) $8.60
B) $10.60
C) $8.20
D) $10.20
E) $7.20

Question 66

Sanders Company has the following information for last year:
There were no beginning inventories.
Refer to Figure 8-5. What is the value of ending inventory for Sanders using the absorption costing method?

A) $360,000
B) $280,000
C) $220,000
D) $380,000

Question 67

The following information pertains to Mayberry Corporation:

Refer to Figure 8-4. What is the value of the ending inventory using the variable costing method?

A) $240,000
B) $360,000
C) $350,000
D) $420,000

Question 68

Loring Company had the following data for the month:
Fixed overhead is $4,000 per month; it is applied to production based on normal activity of 2,000 units. During the month, 2,000 units were produced. Loring started the month with 300 units in beginning inventory, with unit product cost equal to this month's unit product cost. A total of 2,100 units were sold during the month at price of $14. Selling and administrative expense for the month, all fixed, totaled $3,600.
Refer to Figure 8-2. What is the unit product cost under variable costing?

A) $8.60
B) $10.60
C) $8.20
D) $10.20
E) $7.20

Question 69

Sanders Company has the following information for last year:
There were no beginning inventories.
Refer to Figure 8-5. What is the income for Sanders using the absorption costing method?

A) $520,000
B) $480,000
C) $1,200,000
D) $500,000

Question 70

Sanders Company has the following information for last year:
There were no beginning inventories.
Refer to Figure 8-5. What is the cost of ending inventory for Sanders using the variable costing method?

A) $300,000
B) $280,000
C) $120,000
D) $260,000

Question 71

The following information pertains to Stark Corporation:

Refer to Figure 8-9. What is the value of ending inventory using the variable costing method?

A) $310,000
B) $250,000
C) $200,000
D) $390,000

Question 72

Ramon Company reported the following units of production and sales for June and July:
Income under absorption costing for June was $40,000; income under variable costing for July was $50,000. Fixed costs were $600,000 for each month.
Refer to Figure 8-7. How much was income for June using variable costing?

A) $40,000
B) $20,000
C) $(40,000)
D) $(20,000)

Question 73

Loring Company had the following data for the month:
Fixed overhead is $4,000 per month; it is applied to production based on normal activity of 2,000 units. During the month, 2,000 units were produced. Loring started the month with 300 units in beginning inventory, with unit product cost equal to this month's unit product cost. A total of 2,100 units were sold during the month at price of $14. Selling and administrative expense for the month, all fixed, totaled $3,600.

-Refer to Figure 8-2. What is operating income under variable costing?

A) $3,540
B) $7,980
C) $11,340
D) -$540
E) $3,740

Question 74

Steele Corporation has the following information for January, February, and March:
Production costs per unit (based on 10,000 units) are as follows:
There were no beginning inventories for January, and all units were sold for $50. Costs are stable over the three months.
Refer to Figure 8-8. What is the February ending inventory for Steele Corporation using the absorption costing method?

A) $39,000
B) $45,000
C) $135,000
D) $300,000

Question 75

Steele Corporation has the following information for January, February, and March:
Production costs per unit (based on 10,000 units) are as follows:
There were no beginning inventories for January, and all units were sold for $50. Costs are stable over the three months.
Refer to Figure 8-8. What is the January ending inventory for Steele Corporation using the variable costing method?

A) $260,000
B) $78,000
C) $108,000
D) $90,000

Question 76

Steele Corporation has the following information for January, February, and March:
Production costs per unit (based on 10,000 units) are as follows:
There were no beginning inventories for January, and all units were sold for $50. Costs are stable over the three months.
Refer to Figure 8-8. What is the February contribution margin for Steele Corporation using the variable costing method?

A) $240,000
B) $170,000
C) $119,000
D) $204,000

Question 77

Loring Company had the following data for the month:
Fixed overhead is $4,000 per month; it is applied to production based on normal activity of 2,000 units. During the month, 2,000 units were produced. Loring started the month with 300 units in beginning inventory, with unit product cost equal to this month's unit product cost. A total of 2,100 units were sold during the month at price of $14. Selling and administrative expense for the month, all fixed, totaled $3,600.

-Refer to Figure 8-2. What is operating income under absorption costing?

A) $3,540
B) $7,980
C) $11,340
D) -$540
E) $3,740

Question 78

Sanders Company has the following information for last year:
There were no beginning inventories.
Refer to Figure 8-5. What is the income for Sanders using the variable costing method?

A) $420,000
B) $480,000
C) $520,000
D) $500,000

Question 79

Bailey Company incurred the following costs in manufacturing desk calculators:
During the period, the company produced and sold 2,000 units.
Refer to Figure 8-6. What is the inventory cost per unit using variable costing?

A) $52
B) $66
C) $72
D) $50

Question 80

Steele Corporation has the following information for January, February, and March:
Production costs per unit (based on 10,000 units) are as follows:
There were no beginning inventories for January, and all units were sold for $50. Costs are stable over the three months.
Refer to Figure 8-8. What is the March ending inventory for Steele Corporation using the variable costing method?

A) $120,000
B) $104,000
C) $260,000
D) $15,000