BUS 215 chapter 6
Dollar sales for a company to breakeven
(traceable fixed expenses + common fixed expenses) / overall CM ratio CM ratio = cm/total sales
If a segment is entirely eliminated, common fixed costs will _______
no change
Under both variable costing and absorption costing, variable and fixed selling and administrative costs are treated as
period
When using absorption costing, fixed manufacturing overhead cost per unit = Total fixed manufacturing overhead cost divided by units:
produced
Absorption costing treats fixed manufacturing overhead as a Blank______ cost.
product
Selling and administrative expenses are _________ on both the absorption and variable costing income statements.
the same amount
Costs are separated between variable and fixed expenses when using ______ costing, whereas ______ costing separates costs between product and period.
variable, absorption
Using variable costing and the contribution approach for internal decision making
supports decision making, enables CVP analysis, facilitates explaining changes in net income
When inventory increases, absorption costing net operating income is higher than variable costing net income due to the fixed manufacturing overhead
deferred in the inventory account on the balance sheet
Product Costs (Variable Costing)
direct materials, direct labor, manufacturing overhead
On an absorption costing income statement, selling and administrative expenses
equal the amounts reported on a variable costing income statement, are reported as a single amount
An absorption costing income statement calculates
gross margin by deducting cost of goods sold from sales
Absorption costing net income is calculated by subtracting selling and administrative expenses from _______ __________
gross, margin
SPS Products has two divisions—Catalog Sales and Online Sales. For the last quarter the Catalog Sales segment margin was ($5,000). Online sales were $100,000. Online Sales contribution margin was $60,000, and its segment margin was $40,000. If Catalog Sales are discontinued, it is estimated that online sales will increase by 10%. Discontinuing Catalog Sales should increase company profits by
11,000 Reason: Increased online sales contribution margin [$100,000 × 10% × ($60,000 ÷ $100,000)] is $6,000 + $5,000 saved from stopping catalog sales = $11,000.
Costs are categorized by function when using _______, costing and by behavior when using ________
Absorption, Variable
Fixed manufacturing overhead costs are expensed as units sold as part of cost of goods sold under ___________, costing, and expensed in full with period costs under________.
Absorption, Variable
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.
Which method will produce the highest values for work in process and finished goods inventory ? a. absorption costing b. variable costing c. they produce the same values these inventories d. it depends....
D but the book says A
Product Cost (Absorption Costing)
Direct labor, Direct Materials, Variable Manufacturing Overhead, fixed manufacturing overhead
The variable costing income statement separates
Fixed and Variable expenses
Period Costing ( Variable Costing )
Fixed manufacturing overhead, Variable selling and administrative expenses, Fixed selling and administrative expenses
Decision-making problems that could occur when using absorption costing include inappropriate ______ decisions, and decisions made to ______ products that are, in fact, profitable.
Pricing, drop
Period Costing ( Absorption Costing )
Variable selling and administrative expenses and Fixed selling and administrative expenses
Financial statement users need to be aware of changes in inventory levels when using
absorption
Under absorption costing product costs consist of
both variable and fixed manufacturing