CHAPTER 9 QUIZ
1. The main difference between variable costing and absorption costing is
a. the treatment of nonmanufacturing costs.
b. the accounting for variable manufacturing costs.
c. the accounting for fixed manufacturing costs.
d. 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 2008,
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 2004. Alvin sold 120,000 units of product in 2008
at a selling price of $40 per unit.
2. [CMA Adapted] Alvin’s 2008 operating income using variable costing is
a. $800,000.
b. $600,000.
c. $440,000.
d. $200,000.
3. [CMA Adapted] Alvin’s 2008 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
a. when the quantity of beginning inventory equals the quantity of ending inventory.
b. when the quantity of beginning inventory is more than the quantity of ending inventory.
c. when the quantity of beginning inventory is less than the quantity of ending inventory.
d. 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?
a. The reason for increased operating income is the deferral of fixed manufacturing
overhead contained in unsold inventory.
b. A desirable effect of these changes in production is “cherry picking” the production line.
c. This is done through decreases in the production schedule as customer demand for
product falls.
d. None of the above statements are true regarding the manager’s action to increase
operating income through changes in the production schedule.
6. The proponents of throughput costing
a. maintain that variable costing undervalues inventories.
b. maintain that it provides more incentive to produce for inventory than do either variable
or absorption costing.
c. 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.
d. 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?
a. Master-budget utilization
b. Practical capacity
c. Theoretical capacity
d. Normal utilization
8. Use of capacity levels based on demand
a. hides the amount of unused capacity.
b. highlights the cost of capacity acquired but not used.
c. yields a cost rate that does not include a charge for unused capacity.
d. results in a price that covers the cost of capacity customers expect to pay.
9. A company may experience the downward demand spiral when
a. the use of theoretical capacity as a denominator level has contributed to budgets that
project sales to be higher than actually attainable.
b. spreading capacity costs over a small number of units and setting selling prices even
higher to recover those costs.
c. engaged in a cyclical business and after experiencing an upturn.
d. 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?
a. Proration approach
b. Adjusted allocation-rate approach
c. Theoretical approach
d. Write-off to cost-of-goods-sold approach
CHAPTER 9 QUIZ SOLUTIONS
