ACCT: Chapter 8

When inventory increases, which costing method generally results in higher net income?

Absorption costing

Match the costing method with the way costs are categorized.

Absorption costing: Categorized by function Variable costing: Categorized by behavior

Fixed manufacturing overhead costs are expensed as units are sold as part of cost of goods sold under ________ costing, and expensed in full with period costs under ________costing.

absorption; variable

A fixed cost that supports the operations of more than one segment, but is not traceable in whole or part to any one segment is a(n) _______ fixed cost.

common

When a segment is eliminated, a ______.

common fixed cost will remain unchanged traceable fixed cost will disappear

Variable costing income statements are based upon a ______ format.

contribution

A variable costing income statement ______.

focuses on fixed and variable expenses, while an absorption costing income statement focuses on period and product costs calculates contribution margin while the absorption costing income statement calculates gross margin

When allocating fixed manufacturing overhead cost to units under absorption costing, the total fixed overhead costs must be divided by the number of units _______.

produced

When using absorption costing, fixed manufacturing overhead cost per unit = Total fixed manufacturing overhead divided by units ______.

produced

The segment margin is a valuable tool for assessing the long-run ______ of a segment.

profitability

Assigning common fixed costs to segments impacts ______.

segment margin only

Segment contribution margin equals segment revenue minus the _______ expenses for the segment.

variable

Product costs under absorption costing include ______.

variable manufacturing overhead direct labor fixed manufacturing overhead direct materials

Variable costing treats fixed manufacturing overhead as a(n) _______ cost.

period

Comfy Cozy Chairs makes and sells rockers. Each rocker requires $45 of direct materials and $37 of direct labor. Variable manufacturing overhead is $8 per unit, and fixed manufacturing overhead totals $58,000. Variable selling and administrative costs are $15 per unit, and fixed selling and administrative costs total $102,000. During the period, 2,000 rockers were produced and 1,640 were sold. The unit product cost using absorption costing is ______.

$119.00 $45 + $37 + $8 + ($58,000 ÷ 2,000) = $119

Given the following information, calculate the unit product cost under absorption costing. Direct materials: $50/unit; Direct labor: $75/unit; Variable manufacturing overhead: $27/unit; Fixed manufacturing overhead: $30,000; Units produced: 10,000; Units sold: 6,000.

$155.00 $50 + $75 + $27 + ($30,000 ÷ 10,000) = $155 per unit

Put'er There manufactures baseball gloves. Each glove requires $22 of direct materials and $18 of direct labor. Variable manufacturing overhead cost is $7 per unit and fixed manufacturing overhead cost is $19,000 in total. Variable selling and administrative costs are $11 per unit sold and fixed selling and administrative costs are $13,200. Last period, 800 gloves were produced, and 585 gloves were sold. The unit product cost using variable costing is ______ per unit.

$47.00 $22 + $18 + $7 = $47. Selling and administrative costs are never considered part of product cost.

Citrus Scents produces body sprays. Each bottle has a unit product cost of $5.38. The company produced 1,490 bottles this month and sold 1,203 of those bottles. Total cost of goods sold was ______.

$6,472.14 $5.38 × 1,203 = $6,472.14

Frames, Inc. manufactures large wooden picture frames. Each frame requires $19 of direct materials and $40 of direct labor. Variable manufacturing overhead cost is $9 per frame produced, and variable selling and administrative expense is $13 per frame sold. The company produces 5,000 units each month and total fixed manufacturing overhead cost per month is $15,000. The unit product cost of each frame using variable costing is $.

$68.00 DM ($19.00) + DL ($40.00) + VOH ($9.00) = $68.00

Pearls, Pearls, Pearls! manufactures and sells jewelry. The total variable cost of goods sold this month is $72,490. Variable selling and administrative cost is $22 per unit sold. If 350 units are produced and 314 units are sold this month, the total variable cost reported on the income statement for the month is $_______ .

$79,398 ($22.00 * 314) * 72,490 = $79,398

Blissful Breeze manufactures and sells ceiling fans. Each fan has a unit product cost of $112 and a unit selling price of $190. If Blissful Breeze produces 900 fans and sells 842 fans this month, the total cost of goods sold will be $_______ .

$94,304 $112.00 * 842 units = $94,304

Which of the following statements are correct regarding income statements prepared under variable and absorption costing?

Both income statements include product and period costs. Reported net income on the statements often differ.

When preparing a segment margin income statement ______.

cost of goods sold consists of only variable manufacturing costs traceable fixed expenses are deducted from contribution margin

Net operating income is less under absorption costing than under variable costing when inventory for the period ______.

decreases

Absorption and variable costing net income are usually different due to the accounting for ______.

fixed manufacturing overhead

Under variable costing the cost of a unit of inventory does not contain ______.

fixed manufacturing overhead

When units sold exceed units produced, net income under variable costing will generally be _______ net income under absorption costing.

higher than

When units produced exceed units sold, net income will generally be ______ costing.

higher under absorption costing than under variable

A traceable fixed cost ______.

is incurred because of the existence of the segment

The segment margin represents the ______.

margin available after a segment has covered all of its own costs

Segmented income statements ______.

may be prepared for activities at many levels in a company

Variable costing treats ______ manufacturing costs as product costs.

only variable

Only costs that would disappear over time if a segment disappeared should be treated as fixed costs.

traceable

The segment margin is obtained by deducting the ______ fixed costs of a segment from the segment's ______.

traceable; contribution margin

If a segment is eliminated, _______ fixed costs that are not traced to the segment will not change.

common

True or false: Under absorption costing, fixed overhead is treated like a variable cost because a portion of the total cost is allocated to each unit produced, rather than being expensed as one large sum.

true

For external reporting, income statements are generally prepared using _______ costing, while _______ costing is used for internal decision making purposes.

absorption; variable

The two general costing approaches used by manufacturing companies to prepare income statements are _______ costing and _______ costing.

absorption; variable

The Quaint Quilt produces and sells handmade quilts. Variable manufacturing costs total $140 per quilt. Fixed manufacturing overhead totals $68,250 per quarter. Variable selling and administrative costs are $19 per quilt sold, and fixed selling and administrative costs are $50,000 per quarter. Last quarter, the company produced 910 quilts and sold 780 quilts. The total variable cost reported on Quaint Quilt's variable costing income statement is ______.

$124,020 ($140 + $19) × 780 quilts sold = $124,020