The absolute minimum absorption-inventory cost that would be reported under the

Question

The absolute minimum absorption-inventory cost that would be reported under the best conceivable operating conditions is a description of which type of denominator-level concept cost? Master-budget utilization Practical capacity Theoretical capacity Normal utilization Use of capacity levels based on demand hides the amount of unused capacity. highlights the cost of capacity acquired but not used. yields a cost rate that does not include a charge for unused capacity. results in a price that covers the cost of capacity customers expect to pay. A company may experience the downward demand spiral when the use of theoretical capacity as a denominator level has contributed to budgets that project sales to be higher than actually attainable. spreading capacity costs over a small number of units and setting selling prices even higher to recover those costs. engaged in a cyclical business and after experiencing an upturn. the production-volume variance is unfavorable each time period during a year. The manner in which a company deals with end-of-period variances will determine the effect production-volume variances have on the company's end-of-period operating income. When the chosen capacity level exceeds the actual production level, which approach to end-of-period variances results in an unfavorable production-volume variance affect on that period's operating income? Proration approach Adjusted allocation-rate approach Theoretical approach Write-off to cost-of-goods-sold approach

Explanation / Answer

Answer to 1 i Option C

Answer to 2 is Option A

When capacity level of production is based on Demand, the amount of unused capacity is reduced to zero, as the capacity is increased based on demand.

Answer to 3 is Option B

Downward demand spiral occurs when a business eliminated the products withour reducing the overhed cost. It allocate the oeverhead cost to he remaining products.

Answer to 4 is Option A

Proration approach is the approach in which the difference is allocated between cost of goods sold, work-in-process, and finished goods based on their relative sizes.

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