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.