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Chapter 12 Extra MC Questions

James R. Martin, Ph.D., CMA
Professor Emeritus, University of South Florida

Chapter 12 | MAAW's Textbook Table of Contents

1. The major behavioral problem associated with absorption costing is that

a. overhead allocations cause distorted product costs.
b. fixed overhead allocations motivate managers to overproduce.
c. managers may have a tendency to ignore variable costs.
d. managers may have a tendency to ignore fixed costs.
e. none of these.

2. The major behavioral problem associated with direct or variable costing is

a. overhead allocations cause distorted product costs.
b. fixed overhead allocations motivate managers to overproduce.
c. managers may have a tendency to ignore variable costs.
d. managers may have a tendency to ignore fixed costs.
e. none of these.

3. When a firm uses absorption costing it may find that

a. profits will always increase with increases in sales.
b. profits will always decrease with decreases in sales.
c. increased output and decreased sales results in increased profits.
d. decreased output and constant sales result in increased profits.
e. None of the above.

4. Which of the following statements is true with regard to direct costing?

a. All direct manufacturing costs are capitalized in the inventories.
b. All variable costs are capitalized in the inventories.
c. Only direct manufacturing costs are capitalized in the inventories.
d. Only variable manufacturing costs are capitalized in the inventories.
e. a. and d.

5. The difference between absorption costing and variable (direct) costing is that

a. fixed manufacturing costs are capitalized in absorption costing, but not in variable costing.
b. all fixed costs are capitalized in absorption costing, but not in variable costing.
c. variable selling & administrative costs are capitalized in variable costing, but not in absorption costing.
d. a. and c.
e. b. and c.

Sam’s Toy Factory produces a small toy wagon. Sam’s results for the year are as follows:

Wagons sold = 36,000
Wagons produced = 44,000
Sales price per wagon = $20
Beginning inventories = 0
Direct material cost per wagon = $5
Variable manufacturing cost (labor and overhead) per wagon = $3
Variable selling and administrative cost per wagon = $2
Total fixed costs per year = $120,000
Fixed manufacturing cost per wagon = $2 based on an annual capacity of 48,000 wagon.

6. Sam’s net income before taxes based on variable costing is

a. 216,000
b. 240,000
c. 256,000
d. 264,000
e. some other amount.

7. Sam’s net income before taxes based on absorption costing is

a. 216,000
b. 240,000
c. 256,000
d. 264,000
e. some other amount.

8. Sam’s net income before taxes based on throughput costing is

a. 216,000
b. 240,000
c. 256,000
d. 264,000
e. some other amount.

9. What is Sam’s contribution margin?

a. 240,000
b. 288,000
c. 360,000
d. 432,000
e. some other amount.

10. The conventional linear break-even unit sales is

a. 4,000
b. 12,000
c. 15,000
d. 19,385
e. some other amount.

11. The break-even unit sales based on variable costing is

a. 4,000
b. 12,000
c. 15,000
d. 19,385
e. some other quantity.

12. The break-even unit sales based on absorption costing is

a. 4,000
b. 12,000
c. 15,000
d. 19,385
e. some other quantity.

13. The break-even unit sales based on throughput costing is

a. 4,000
b. 12,000
c. 15,000
d. 19,385
e. some other quantity.

Now assume Sam company’s results for year two are the same as above except 44,000 wagons are sold and 36,000 wagons are produced.

14. Sam’s net income before taxes based on variable costing for the year 2 is

a. 304,000
b. 320,000
c. 328,000
d. 344,000
e. some other amount.

15. Sam’s net income before taxes based on absorption costing for the year 2 is

a. 304,000
b. 320,000
c. 328,000
d. 344,000
e. some other amount.

16. Sam’s net income before taxes based on throughput costing for the year 2 is

a. 304,000
b. 320,000
c. 328,000
d. 344,000
e. some other amount.

Chapter 12 Extra MC Solution