Chapter 9-Answers - Chapter 9 Inventory Costing and...

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Chapter 9 Inventory Costing and Capacity Analysis 1) The two most common methods of costing inventories in manufacturing companies are variable costing and fixed costing. 2) Absorption costing "absorbs" only variable manufacturing costs. 3) Variable costing includes all variable costs both manufacturing and nonmanufacturing in inventory. 4) Under both variable and absorption costing, all variable manufacturing costs are inventoriable costs. . 5) The main difference between variable costing and absorption costing is the way in which fixed manufacturing costs are accounted for. . 6) Under variable costing, fixed manufacturing costs are treated as an expense of the period. . 7) The contribution-margin format of the income statement is used with absorption costing. 8) The contribution-margin format of the income statement distinguishes manufacturing costs from nonmanufacturing costs. 9) The gross-margin format of the income statement highlights the lump sum of fixed manufacturing costs. 10) In absorption costing, all nonmanufacturing costs are subtracted from gross margin. . 11) Direct costing is a perfect way to describe the variable-costing inventory method. 12) When variable costing is used, an income statement will show gross margin. 13) The income under variable costing will always be the same as the income under absorption costing. 14)
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Absorption costing is required by GAAP (Generally Accepted Accounting Principles) for external reporting. . 15) When production deviates from the denominator level, a production- volume variance always exists under absorption costing. . 16) Fixed manufacturing costs included in cost of goods available for sale + the production-volume variance will always = total fixed manufacturing costs under absorption costing. . 17) The production-volume variance only exists under absorption costing and not under variable costing. . 18) When the unit level of inventory increases during an accounting period, operating income is greater under variable costing than absorption costing. 19) The difference in operating income under absorption costing and variable costing is due solely to the timing difference of expensing fixed manufacturing costs. . 20) If managers report inventories of zero at the start and end of each accounting period, operating incomes under absorption costing and variable costing will be the same. . 21) Under absorption costing, managers can increase operating income by holding more inventories at the end of the period. . 22) Many companies use variable costing for internal reporting to reduce the undesirable incentive to build up inventories. . 23) Under variable costing, managers can increase operating income by simply producing more inventory at the end of the accounting period even if that inventory never gets sold. 24)
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Chapter 9-Answers - Chapter 9 Inventory Costing and...

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