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# im_ch07 - CHAPTER 7 Variable Costing A Decision-Making...

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CHAPTER 7 Variable Costing: A Decision-Making Perspective ASSIGNMENT CLASSIFICATION TABLE Study Objectives Questions Brief Exercises Exercises A Problems B Problems 1. Explain the difference between absorption cost- ing and variable costing. 1, 2, 3, 5 1, 2, 3, 4, 5, 6, 7, 8 1, 2, 3, 4, 5, 6 1A, 2A, 3A 1B, 2B, 3B 2. Discuss the effect that changes in production level and sales level have on net income measured under absorption costing versus variable costing. 4, 6, 7, 8, 9, 10, 13 7, 8 5, 6, 7 1A, 2A, 3A 1B, 2B, 3B 3. Discuss the relative mer- its of absorption costing versus variable costing for management decision making. 11, 12, 14 2A, 3A 2B, 3B 4. Explain the term sales mix and its effects on break-even sales. 15, 16, 17 9, 10, 11, 12 8, 9, 10, 11, 12 4A 4B 5. Understand how operat- ing leverage affects profitability. 18, 19, 20, 21, 22 13, 14, 15 13, 14, 15 5A 5B 7-1

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ASSIGNMENT CHARACTERISTICS TABLE Problem Number Description Difficulty Level Time Allotted (min.) 1A Calculate product cost; prepare income statements under variable costing and absorption costing and reconcile difference. Simple 20 - 30 2A Prepare income statements under absorption costing and variable costing for a company with beginning inventory, and reconcile differences. Moderate 20 - 30 3A Prepare absorption and variable costing income state- ments and reconcile differences between absorption and variable costing income statements when sales level and production level change. Discuss relative usefulness of absorption costing versus variable costing. Moderate 20 - 30 4A Determine break-even sales under alternative sales strategies and evaluate results. Moderate 20 - 30 5A Compute degree of operating leverage and evaluate impact of operating leverage on financial results. Moderate 20 - 30 1B Calculate product cost; prepare income statements under variable costing and absorption costing and recon- cile difference. Simple 20 - 30 2B Prepare income statements under absorption costing and variable costing for a company with beginning inventory, and reconcile differences. Moderate 20 - 30 3B Prepare absorption and variable costing income state- ments and reconcile differences between absorption and variable costing income statements when sales level and production level change. Discuss relative usefulness of absorption costing versus variable costing. Moderate 20 - 30 4B Determine break-even sales under alternative sales strategies and evaluate results. Moderate 20 - 30 5B Compute degree of operating leverage and evaluate impact of operating leverage on financial results. Moderate 20 - 30 7-2
BLOOM’S TAXONOMY TABLE 7-3

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STUDY OBJECTIVES 1. EXPLAIN THE DIFFERENCE BETWEEN ABSORPTION COSTING AND VARIABLE COSTING. 2. DISCUSS THE EFFECT THAT CHANGES IN PRO- DUCTION LEVEL AND SALES LEVEL HAVE ON NET INCOME MEASURED UNDER ABSORPTION COSTING VERSUS VARIABLE COSTING.
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im_ch07 - CHAPTER 7 Variable Costing A Decision-Making...

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