Acct 285: Exam 2

when inventory increases, absorption costing net operating income is higher than variable costing net income due to the fixed manf OH:

deferred in the inventory account on the balance sheet

In activity based costing what are assigned as a product cost?

direct labor, sales commission

when a segment cannot cover its own costs, that segment should...

probably be dropped

when allocating fixed manufacturing overhead cost to units under absorption costing, the total fixed overhead costs must be divided by the of units ____

produced

Using Variable costing and the contibution approach for internal decision making:

- facilitates explaining changes in NI - enables CVP analysis -supports decision making

When preparing a segment income statement using the contribution format:

-COGS consists of only variable manufacturing costs -variable and fixed costs are listed in seperate sections of the statement

discontinuing a profitable segment results in:

-a reduction in the overall profits of the company -the loss of the segment's revenues

a variable costing income statement

-focuses on fixed and variable expenses, while an absorption costing income statement focuses on period and product -calculated CM while the absorption costing income statement calculates gross margin

Using absorption costing for segmented income statements can lead to:

-omission of upstream and downstream costs -under-costing of segments

key differences between variable and absorption costing include:

-whether or not CM is reported -how cost classifications are defined -how fixed OH is treated

Total COGS =

= Selling Price * Q Sold

Why is CVP analysis more difficult when using absorption costing than when using variable costing?

CVP analysis requires costs to be broken down between variable and fixed which is not done in absorption costing

The use of ____ costing can lead to the omission of segment costs because nonmanufacturing costs are NOT included as costs of a product

absorption

in order to comply with GAAP and IFRS, the ___ costing method must be used for external reporting in the US

absorption

variable and fixed cost distinctions are ignored when a company prepares income statements using ___ costing

absorption