Acct Ch 5

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Author:
kppatel702
ID:
12538
Filename:
Acct Ch 5
Updated:
2010-03-30 19:13:53
Tags:
Managerial Accounting
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Description:
Exam II
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  1. Which of the following complies with GAAP for external reporting purposes?

    A. Absolute costing
    B. Fixed costing
    C. Full costing
    D. Variable costing
    C. Full costing
    (this multiple choice question has been scrambled)
  2. Which of the following provides information helpful to internal decision making?

    A. Absolute costing
    B. Variable costing
    C. Fixed costing
    D. Full costing
    B. Variable costing
    (this multiple choice question has been scrambled)
  3. If units produced are greater then units sold then what yields higher net income
    full costing
  4. If units produced are les then units sold then what yields higher net income
    variable costing
  5. Full costing differs from variable costing in that:

    A. Full costing includes fixed manufacturing overhead in inventory
    B. Full costing inlcudes variable manufacturing overhead in inventory
    C. Full costing excludes selling costs from consideration
    D. Full costing excludes administrative costs from consideration
    A. Full costing includes fixed manufacturing overhead in inventory
    (this multiple choice question has been scrambled)
  6. Use of a just in time inventory management system is likely to

    A. Increase the difference between variable and full costing income
    B. Decrease the difference between variable and full costing income
    C. Have no effect on the difference between variable and full costing income
    B. Decrease the difference between variable and full costing income
    (this multiple choice question has been scrambled)
  7. A benefit of variable costing for internal reporting purposes is that it

    A. Facilitates CVP analysis
    B. Limits the ability to inflate income by producing more units than needed for current sales
    C. Both a and b are correct
    D. Neither a nor b is correct
    C. Both a and b are correct
    (this multiple choice question has been scrambled)
  8. Formula: Contribution Margin Ratio
    Contribution Margin / Sales
  9. Formula: Increase in Contribution Margin
    Increase in Sales x Contribution Margin Ratio
  10. Formula: Income statement under full costing
    • Revenues
    • - Cogs
    • Gross Profit
    • - Sales and Administrative Expense
    • = Net Income
  11. Formula: Income statement under variable costing
    • Revenues
    • - Variable Cost
    • Total Contribution Margin
    • - All Fixed Cost
    • = Net Income
  12. Formula: Unit cost under full costing
    (Variable Production Cost + Fixed Production Cost) / Units Produced
  13. Formula: Ending inventory under full costing
    (Total variable cost + (total fixed manufacturing OH/units produced)) x (units in EI)
  14. Formula: Ending inventory under variable costing
    Total variable cost x units in EI
  15. Formula: Cost of goods sold under full costing
    (Total variable cost + (total fixed manufacturing OH/units produced)) x (units sold)
  16. Formula: Cost of goods sold under variable costing
    Total variable cost x units sold
  17. Formula: Net Income under full costing
    ((Sales price – (total variable cost + (fixed manufacturing OH/Units produced)) x (units sold) – Sales and Administrative Costs – Variable Sales Cost
  18. Formula: Net income under variable costing
    ((Sales price – (total variable cost + variable sales cost) x (units sold)) – FMOH - Sales and Administrative Costs
  19. What is the difference between variable and full costing?
    In full costing fixed manufacturing overhead is treated as a product cost, in variable costing it is treated as a period cost
  20. Why income computed under full costing will exceed income computed under variable costing if production exceeds sales
    When production exceeds sales, part of fixed manufacturing overhead will remain in inventory. In variable costing, the entire amount of fixed manufacturing overhead will be expensed since it is treated as a period cost. Thus, income computed under full costing will exceed income computed under variable costing when production exceeds sales.
  21. What are the benefits of variable costing for internal reporting purposes?
    Variable costing facilitates C-V-P analysis since fixed and variable costs are separated and contribution margin is calculated. Also, under variable costing, managers cannot artificially inflate profit by producing more units than they sell and burying fixed manufacturing overhead in inventory.
  22. Why would the difference between income computed under full costing and income computed under variable costing be relativelyu small if a company used a JIT inventory management system?
    Companies using JIT generally have low levels of work in process and finished goods inventory. Thus, even when a company uses full costing, very little of fixed manufacturing overhead is in inventory at the end of a period. Rather, most of it is in cost of goods sold—an expense.
  23. Why will ending inventory balance computed under full costing always be greater than the inventory balance computed under variable costing?
    • Under full costing, ending inventory includes direct material, direct labor, variable manufacturing overhead, and fixed manufacturing overhead.
    • Under variable costing, ending inventory includes each of these items except fixed manufacturing overhead. Thus, the inventory balance under variable costing is always less than the balance under full costing (assuming the balance is not zero).

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