Ch. 9

Question 1

absorption costing

Answer 1

a method of inventory costing in which all variables manufacturing costs and all fixed manufacturing costs are included as inventoriable costs

Question 2

downward demand spiral

Answer 2

the continuing reduction in the demand for its products that occurs when competitors prices are not met, as demand drops further and further, higher and higher unit costs result in greater reluctance to meet competitors prices

Question 3

master budget capacity utilization

Answer 3

the level of capacity utilization that managers expect for the current budget period, which is typically one year

Question 4

normal capacity utilization

Answer 4

the level of capacity utilization that satisfies average customer demand over a period that included seasonal, cyclical, and trend factors.

Question 5

practical capacity

Answer 5

the level of capacity that reduces theoretical capacity by considering unavoidable operating interruptions, such as scheduled maintenance time, shut down for holidays and so on

Question 6

theoretical capacity

Answer 6

the level of capacity based on producing at full efficiency all the time

Question 7

throughput costing (super variable costing)

Answer 7

variable costing in which only direct materials costs are included as inventorial costs

Question 8

variable costing (direct costing)

Answer 8

a method of inventory costing in which all variable manufacturing costs (direct and indirect) are included as inventorial costs