Chapter 9

A method of inventory costing in which all variable manufacturing costs (direct and indirect) are included as inventoriable costs. All fixed manufacturing costs are excluded from inventoriable costs and are instead treated as costs of the period in which they are incurred.

A method of inventory costing in which all variable manufacturing costs and all fixed manufacturing costs are included as inventoriable costs.

An extreme form of variable costing in which only direct materials costs are included as inventoriable costs. All other costs are costs of the period in which they are incurred.

The level of capacity based on producing at full efficiency all the time.

-Measures the denominator level in terms of what a plant can supply.
-Represents an ideal benchmark.
-Highlights the cost of capacity acquired but not used.
-If used as the denominator-level concept, would avoid the restatement of units costs when expected demand levels change.

The level of capacity that reduces theoretical capacity by considering unavoidable operating interruptions, such as scheduled maintenance time and shutdowns for holidays.

-Measures the denominator level in terms of what a plant can supply.
-Highlights the cost of capacity acquired but not used.
-Should be used for long-term pricing purposes.
-If used as the denominator-level concept, would avoid the restatement of unit costs when expected demand levels change.

The level of capacity utilization that satisfies average customer demand over a period (say, two to three years) that includes seasonal, cyclical, and trend factors.

-Measures the denominator level in terms of demand for the output of the plant.
-Hides the cost of capacity acquired but not used.

The level of capacity utilization that managers expect for the current budget period, which is typically one year.

-Measures the denominator level in terms of demand for the output of the plant.
-Should be used for performance evaluation in the current year.
-Hides the cost of capacity acquired but not used.

The continuing reduction in the demand for a company's products that occurs when competitor prices are not met; as demand drops further, higher and higher unit costs result in greater reluctance to meet competitors' prices.

Restates all amounts in the general and subsidiary ledgers by using actual rather than budgeted cost rates. If effect, actual costing is adopted at the end of the fiscal year.

The underallocated or overallocated overhead is spread among ending balances in work-in-process control, finished goods control, and cost of goods sold. This restates the ending balances in these accounts to what they would have been if actual cost rates had been used rather than budgeted cost rates.