Cornerstones of Managerial Accounting Study Set 5

Business

Quiz 8 :

Absorption and Variable Costing, and Inventory Management

Quiz 8 :

Absorption and Variable Costing, and Inventory Management

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Which of the following is a reason for carrying inventory?
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E. All of these.
Reasons for Carrying Inventory are following:
• To balance ordering or setup costs and carrying costs.
• To satisfy customer demand (e.g., meet delivery dates).
• To avoid shutting down manufacturing facilities because of:
• Machine failure
• Defective parts.
• Unavailable parts.
• To buffer against unreliable production processes.
• To take advantage of discounts.
• To hedge against future price increases.

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is the difference between the unit cost of a product under absorption costing and variable costing?
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In Absorption costing, fixed factory overhead is treated as a product cost. Unit product cost consists of direct materials, direct labor, variable factory overhead, and fixed factory overhead.
In Variable costing, fixed factory overhead is treated as a period expense. Unit product cost under variable costing consists of direct materials, direct labor, and variable factory overhead.
Table showing difference between Absorption costing and Variable costing
img

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Garrett Company provided the following information: img Common fixed cost totaled $46,000. Garrett allocates common fixed cost to Product 1 and Product 2 on the basis of sales. If Product 2 is dropped, which of the following is true?
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C. Overall operating income will decrease by $25,000.
Operating income under variable costing:
img

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are the reasons for carrying inventory?
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are stockout costs?
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the purchase price of the part being ordered enter into the EOQ equation? Why or why not?
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Explain why, in the traditional view of inventory, carrying costs increase as ordering costs decrease.
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segment could be which of the following?
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a company produces 10,000 units and sells 8,000 units during a period, which method of computing operating income (absorption costing or variable costing) will result in the higher operating income? Why?
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Companies may choose to use variable costing because it
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Suppose that a material has a lead time of four days and that the average usage of the material is 12 units per day. The maximum usage is 15 units per day. What is the safety stock?
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McCartney Company produces a number of products and provides the following information: img Currently, McCartney produces 1,000 units of Product C per production run. Refer to the information for McCartney Company above. Inventory-related cost for Product C under the current inventory policy is
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Suppose that a material has a lead time of four days and that the average usage of the material is 12 units per day. What is the reorder point?
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EOQ for Part B-22 is 2,500 units, and four orders are placed each year. The total annual ordering cost is $1,200. Which of the following is true?
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Yates Company shows the following unit costs for its product: img Yates started the year with 8,000 units in inventory, produced 50,000 units during the year, and sold 55,000 units. The value of ending inventory is
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are ordering costs? Carrying costs? Give examples of each.
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a segmented income statement, which of the following statements is true?
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is the economic order quantity?
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is the difference between contribution margin and segment margin?
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is a segment?
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