M2-Projection and Forecasting Techniques: Part 2

Question 1

When production is greater than sales, absorption costing income is greater than variable costing income. Production in excess of sales result in increases in inventory that include capitalization of fixed product costs that are immediately expensed under variable costing. Since costs that are used in the determination of net income for variable costing are accounted for in inventory for absorption costing will produce higher net income than variable costing when production is greater than sales. (true or false)

Answer 1

true

Question 2

To maximize profit at full capacity, contribution margin per hour should be maximized. (true or false)

Answer 2

true

Question 3

Absorption costing methods represent generally accepted accounting principles generally used for the presentation of external financial statements and are, therefore, for the benefit of external users. (true or false)

Answer 3

true

Question 4

Variable costing typically produces the lowest inventory values since only variable costs are capitalized. Other methodologies of inventory accounting will account for fixed costs in inventory and result in greater values than variable costing. (true or false)

Answer 4

true

Question 5

Absorption costing (as the name implies) absorbs fixed overhead cost into the units produced. Those units placed in inventory can absorb some of the manager’s costs and raise profits. This method encourages large inventories. (true or false)

Answer 5

true

Question 6

Absorption costing (as the name implies) absorbs fixed overhead cost into the units produced. Those units placed in inventory can absorb some of the manager’s cost and raise profits. This method encourages larger inventories. (true or false)

Answer 6

true

Question 7

An increase in production levels within the relevant range would likely cause variable costs to increase. While fixed costs would remain constant, total costs would increase. (true or false)

Answer 7

true

Question 8

Breakeven analysis assumes that all variable costs and revenues are constant on a per-unit basis and are linear over a relevant range. Fixed costs in total are constant. (true or false)

Answer 8

true