1.

Which of the following statements is true regarding an income statement that recognizes the cost of unused capacity?

Multiple Choice

• It is generally used for external reporting purposes.

• It deducts the cost of unused capacity from sales to derive the gross margin.

• It adds the cost of unused capacity to sales to derive the gross margin.

• It treats the cost of unused capacity as a period expense in the income statement.

2.

Which of the following statements is true when a company uses a predetermined overhead rate based on capacity?

Multiple Choice

• The amount of overhead assigned to cost objects, such as products and customers, will include some unused capacity costs.

• The unused capacity cost will fluctuate from one period to the next due solely to the fact that the companys level of output increases or decreases from one period to the next.

• The amount of overhead assigned to cost objects, such as products and customers, will fluctuate from one period to the next due solely to the fact that the companys level of output increases or decreases from one period to the next.

• The amount of overhead assigned to cost objects, such as products and customers, will fluctuate from one period to the next when the companys level of output holds constant from one period to the next.

3.

Assume a company reported the following information for this year:

Budgeted (estimated) production		80,000		units
Budgeted sales		80,000		units
Production capacity		100,000		units
Selling price	$	50		per unit
Variable manufacturing cost	$	18		per unit
Estimated total manufacturing overhead cost (all fixed)	$	700,000
Selling and administrative expenses (all fixed)	$	250,000
Beginning inventories	$	0

Using a predetermined overhead rate based on capacity with units produced as the allocation base, the companys budgeted income statement would report unused capacity costs that are closest to:

rev: 04_16_2020_QC_CS-208650, 06_15_2020_QC_CS-208650

Multiple Choice

• $190,000

• $175,000

• $165,000

• $140,000

4.

Assume a company reported the following information for this year:

Budgeted (estimated) production		80,000		units
Budgeted sales		80,000		units
Production capacity		100,000		units
Selling price	$	50		per unit
Variable manufacturing cost	$	18		per unit
Estimated total manufacturing overhead cost (all fixed)	$	700,000
Selling and administrative expenses (all fixed)	$	250,000
Beginning inventories	$	0

Using a predetermined overhead rate based on capacity with units produced as the allocation base, the companys budgeted income statement would report unused capacity costs that are closest to:

rev: 04_16_2020_QC_CS-208650, 06_15_2020_QC_CS-208650

Multiple Choice

• $190,000

• $175,000

• $165,000

• $140,000

5.

Assume a company reported the following information for this year:

Budgeted (estimated) production		80,000		units
Budgeted sales		80,000		units
Production capacity		100,000		units
Selling price	$	25		per unit
Variable manufacturing cost	$	12		per unit
Estimated total manufacturing overhead cost (all fixed)	$	700,000
Selling and administrative expenses (all fixed)	$	250,000
Beginning inventories	$	0

Using a predetermined overhead rate based on capacity with units produced as the allocation base, the companys budgeted income statement would report a gross margin that is closest to:

rev: 04_16_2020_QC_CS-208650, 06_15_2020_QC_CS-208650

Multiple Choice

• $1,300,000

• $480,000

• $340,000

• $90,000