Question

Please solve this three questions,

1. Which method will produce the lowest values for work in process and finished goods inventories?

A. Absorption costing

B. Variable costing

C. they produce the same inventory values

D. It depends on how the company expenses Selling, General and Administrative costs

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2. Complete the sentence with the correct statement below. Equivalent units of production:

A. is a calculation that is necessary to determine ending inventory values in a process costing environment

B. is computed in all manufacturing compnies to calculate inventory costs.

C. is the basis for calculating fixed manufacturing overhead costs in a process costing environment

D. is used to calculate the break-even point in units

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3. Once the break-even point is reached:

A. the total contribution margin changes from negative to positive

B. net operating income will increase by the unit contribution margin for each additional item sold beyond the break-even point

C. variable expenses will remain constant in total

D. the conribution margin ratio begins to decrease

E. Fixed cost per unit remains constant for any change in activity

Answer 1

Answer 1:

Option B is correct.

When the number of units in work in process and finished goods inventories decrease, absorption costing net operating income will typically be greater than variable costing net operating income.

Answer 2:

Option C is correct.

Explanation: Equivalent units of production are usually stated separately for direct materials and all other manufacturing expenses, because direct materials are typically added at the beginning of the production process,

Answer 3:

Option B is correct.

Explanation: At break even point, there is no profit and loss. Therefore, after this point  net operating income will increase by the unit contribution margin for each additional item sold.