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1) Differneces in operating income between variable costing and absorption costing are due solely to accounting for fixed costs

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1) Differneces in operating income between variable costing and absorption costing are due solely to accounting for fixed costs.  Do you

agree?

2. Why is the term direct costing a minnomer?

3. Do companies in either the service sector or the merchandising sector make choices about absorption costing versus variable costing?

4. Determine which costing method (variable costing or absorption costing) accounts for fixed manufacturing costs as costs of the period:

5. “Companies that make no variable-cost/fixed-cost distinctions must use absorption costing, and those that do make Variable-cost/fixed-cost distinctions must use variable costing.” Do you agree? Expalin.

6. The main trouble with variable costing is that it ignores the increasing importance of fixed costs in manufacturing companies.  Do you agree? Why?

7. Give an example of how, under absorption costing, operating income could fall even though the unit sales level rises.

8. Which of the following is an example that critics of absorption costing may use to show its potential for leading to undesirable incentives

for managers?

9. What are two ways of reducing the negative aspects assocated with using absorption costing to evaluate the performance of a plant manager?

10. What denominator-level capacity concepts emphasize the output a plant can supply?  What denominator-level capacity concepts emphasize the output customers demand for products produced by a plant?

11. Will the financial statements of a company always differ when different choices at the start of the accounting period are made regarding the denominator-level capacity concept?

12. Which denominator-level capacity concept does the IRS require companies to use for tax reporting purposes?

13. “The difference between practical capacity and master-budget capacity utilization is the best measure of management's ability to balance the costs of having too much capacity and having too little capacity.” Do you agree? If not, explain.

14. Describe the downward demand spiral and its implicatioons for pricing decisions.

15. Which of the following facots affect the breakeven point for both absorption costing and variable costing?

1. Fixed (manufacturing and operating) costs.

2.  Contriubtion margin per unit

3.  Production level in units in excess of breakeven sales in units.

4.  Denominator level chosen to set the fixed manufacturing cost rate.