Chapter 4

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

fixed manufacturing overhead

The difference between reported net income on variable costing and absorption costing income statements is based on how

fixed overhead is accounted for

An absorption costing income statement calculates Blank

gross margin by deducting cost of goods sold from sales

A segment should probably be dropped when the segment Blank

has a contribution margin that cannot cover traceable fixed costs cannot cover its own costs

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

higher under absorption costing than under variable

Decision-making problems that could occur when using absorption costing include Blank_

inappropriate pricing decisions dropping profitable products

The segment margin represents the

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

When a segment cannot cover its own costs, that segment should

probably be dropped

Absorption costing treats fixed manufacturing overhead as a Blank______ cost.

product

When using absorption costing, fixed manufacturing overhead is treated as a Blank______ to determine the fixed overhead cost per unit.

product cost and divided by the number of units produced

A part or activity within an organization about which managers would like cost, revenue or profit data is called a(n)

segment

The difference in net operating income between absorption costing and variable costing is due to the Blank

time when fixed overhead is expensed

The variable costing income statement separates

variable and fixed expenses

Bart's Inc. operates retail stores in various cities. Segmented income statements are prepared for each store and for each product line in each store. The property tax for the store is a Blank______ each product line sold in the store.

traceable fixed cost to the store and common fixed cost to

When preparing a segment margin income statement Blank

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

Segment margin is most useful in decisions involving short-run changes in sales volume such as pricing special orders.

False

The adjustment for overapplied overhead

decreases cost of goods sold and increases net operating income.

Comfy Cozy Chairs makes rockers that require $45 of direct materials and $37 of direct labor. Variable manufacturing overhead is $8 per rocker, and fixed manufacturing overhead totals $58,000. Variable selling and administrative costs are $15 per rocker, 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

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 total Units: 10,000 produced and 6,000 sold

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

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 Blank

$76.35 × 155 = $11,834.25

Citrus Scents produces body sprays. Variable selling and administrative expense is $1.05 per bottle and fixed selling and administrative expense is $4,500 per month. If 1,490 bottles are produced and 1,203 are sold in July, total selling and administrative expense for the month will be Blank_

($1.05 × 1,203) + $4,500 = $5,763.15

Blissful Breeze manufactures and sells ceiling fans. Variable selling and administrative expense is $11.50 per fan and fixed selling and administrative expense is $7,800 per month. If Blissful Breeze produces 900 fans and sells 842 fans this month, total selling and administrative expenses will be $

11.50*842=9683 9683+7800=17483

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

Absorption costing -When inventory increases, some fixed manufacturing costs that are expensed under variable costing go to inventory under absorption costing, giving absorption costing a higher net income.

Fixed manufacturing overhead costs are included as part of Work in Process inventory under

Absorption costing only

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.

variable

Categorized by behavior

Absorption

Categorized by function

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

Common

Variable costing net income may be computed by multiplying the number of units sold by the x unit and subtracting total

Contribution margin: Fixed

When using variable costing, fixed manufacturing overhead is

Expensed in the period incurred

Absorption costing net income is calculated by subtracting selling and administrative expenses from

Gross Margin

Absorption costing can lead managers to mistakenly believe that fixed manufacturing overhead costs will Blank______ in total as the number of units produced increases

Increase

Citrus Scents produces body sprays. Each bottle has a unit product cost of $5.38. This month 1,490 bottles were produced and 1,203 bottles were sold. Total cost of goods sold is Blank______

Reason: $5.38 × 1,203 = $6,472.14

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

Traceable

Financial statement users need to be aware of changes in inventory levels when using Blank______ costing.

absorption

When the number of units produced equals the number of units sold

all fixed overhead incurred flows to the income statement under both costing methods absorption costing net income is equal to variable costing net income

Selling and administrative expenses

are always treated as period cost

On an absorption costing income statement, selling and administrative expenses

are reported as a single amount equal the amounts reported on a variable costing income statement

A variable costing income statement

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

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 Blank______ format

contribution

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

decreases

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 Blank______ for the individual product lines made in the plant.

traceable fixed cost to the plant and a common fixed cost

Segment margin is obtained by deducting each segment's

traceable fixed costs from its contribution margin

The unit product cost of a blender is $24. If 900 blenders are produced and 849 blenders are sold, the total cost of goods sold is

20376

Put'er There manufactures baseball gloves that require $22 of direct materials and $18 of direct labor. Variable manufacturing overhead cost is $7 per glove 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 Blank______. Multiple choice question.

22+18+7=47

Frames, Inc. picture frames each require $19 of direct materials and $40 of direct labor. Variable manufacturing overhead cost is $9 per frame and variable selling and administrative expense is $13 per frame sold. Total fixed manufacturing overhead cost per month is $15,000 and the company produces 5,000 frames each month. The unit product cost of each frame using variable costing is

68$ Direct materials + direct labor + variable manufacturing overhead

When inventory increases, absorption costing net operating income is higher than variable costing net income due to the fixed manufacturing overhead Blank______.

deferred in the inventory account on the balance sheet

An example of a traceable fixed cost for General Motors' Corvette Division is the Blank

depreciation on equipment used to manufacture Corvettes

Using variable costing and the contribution approach for internal decision making

enables CVP analysis facilitates explaining changes in net income supports decision making

Product costs under absorption costing include

fixed manufacturing overhead direct labor variable manufacturing overhead direct materials

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

higher than

Segmented income statements

may be prepared for activities at many levels in a company

If a segment is entirely eliminated, common fixed costs will

not change

Assigning common fixed costs to segments impacts

segment margin only

When all of a company's job cost sheets are viewed collectively they form what is known as a

subsidiary ledger

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*314+72490

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

94304- Unit price * the amount of units that were sold that month

Selling and administrative expenses are Blank______ on both the absorption and variable costing income statements.

the same amount

What is the term used when a company applies less overhead to production than it actually incurs?

underapplied

The number of units produced does not affect net operating income when using Blank______ costing.

variable