CH 4 sb
The general guideline is to treat as traceable only those costs that would ______ , over time if the segment was discontinued
disappear
Absorption and variable costing net income are usually different due to the accounting for
fixed manufacturing overhead
Variable costing treats fixed manufacturing overhead as a
period cost
Costs that can be traced directly to a segment
should not be allocated to other segments
Granny's Touch manufactures and sells cookbooks. The company's variable cost of goods sold is $39,200 and variable selling and administrative expense is $6,200. Fixed manufacturing overhead is $19,700 and fixed selling and administrative expense is $9,290. An income statement prepared using variable costing shows
total variable costs: 39,200+6,200 = 45,400 total fixed costs: FMOH+FSAE: 19,700+9,290=$28990
If a segment is entirely eliminated, common fixed costs will:
not change
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 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
When units produced exceed units sold, net income will generally be
higher under absorption costing than under variable costing
Costs are separated between variable and fixed expenses when using ______ costing, whereas ______ costing separates costs between product and period. Multiple choice question.
variable absorption
The variable costing income statement separates
variable and fixed expenses
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
(50+75+27+(30,000/10,000) -155= $155
Sleep Tight manufactures pillows. The company incurred $42,000 of fixed manufacturing overhead cost this year. Variable unit product cost was $17. Variable selling and administrative cost was $9 per unit and fixed selling and administrative expenses totaled $59,000. The company manufactured 28,000 pillows and sold 15,408. Total fixed expenses on the variable costing contribution format income statement equal
42,000+59,000= $101,000
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
22+18+7= $47
Blink sells and manufactures frames for eyeglasses. The unit product cost for frame #47320 is $76.35. Last period, Blink produced 200 frames and sold 155 of them. Total cost of goods sold equals
76.35 x 155= $11834.25
Fixed manufacturing overhead costs are included as part of Work in Process inventory under
absorption costing only
Arbot Co. manufactures appliances at three manufacturing facilities in the United States. Each location has a plant manager who oversees the manufacturing process for that location. Segmented income statements are prepared for each plant and for each product manufactured in the plant. The salary of each plant manager is a:
traceable fixed cost to the plant and a common fixed cost for the individual product lines made in the plant
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
842x112= $94304
Product costs under absorption costing are
-Variable manufacturing overhead -Direct labor -Direct materials -Fixed manufacturing overhead
Discontinuing a profitable segment results in
-a reduction in the overall profits of the company -the loss of the segment's revenues
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
780(140+19)= $124,020
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
variable cost of goods sold: $72,490 variable selling and admin. cost: 314x22= 6908 =72,490+6908= $79,398
The two general costing approaches used by manufacturing companies to prepare income statements are _____ costing and _____ costing
absorption and variable
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
$100,000 x 10% x $60,000/$100,000) is $6,000 + $5,000 saved from stopping catalog sales = $11,000.
Absorption costing is
-used by most companies for both internal and external reports -required by GAAP and IFRS
GAAP and IFRS rules
1. Require segmented financial data be included in annual reports. 2. Require that the same method be used for both internal and external segment reporting. 3. Create problems in reconciling internal and external reports
Comfy Cozy Chairs makes and sells rockers. Each rocker requires $45 of direct materials and $37 of direct labor. Variable manufacturing overhead amounts to $8 per unit, and fixed manufacturing overhead totals $58,000. Variable selling and administrative costs amount to $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
45 + 37 + 8 + (58,000/2,000) = $119
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
5.38x1,203= $6472.14
JPL Company has two segments - Retail and Commercial. The Retail segment has a contribution margin ratio of 40% and traceable fixed expenses of $70,000. Commercial has traceable fixed expenses of $50,000 and a contribution margin ratio of 55%. The company also has $30,000 of common fixed expenses. The break-even point in dollar sales for the Retail segment equals
70,000/0.4 = $175,000
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
When using absorption costing, fixed manufacturing overhead cost per unit = Total fixed manufacturing overhead divided by
units produced
Direct costing or marginal costing are other terms for _____ costing
variable
When preparing a contribution margin income statement
-cost of goods sold consists of only variable manufacturing costs -variable and fixed costs are listed in separate sections of the statement
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
The difference between reported net income on variable costing and absorption costing income statements is based on how
fixed overhead is accounted for
