Chapter 4

Absorption costing and variable costing net operating income will be equal when:

The number of units produced equals the number of units sold; there is no beginning and no ending inventory

an example of a traceable fixed cost for general motors corvette division is the:

depreciation cost on the equipment used to manufacture the Corvettes

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

period

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

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

profitability

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

Higher than

The variable costing income statement separates

Variable and fixed expenses

The general guideline is to treat as traceable only those cost that would ____________ overtime if the segment was discontinued.

disappear

Segment Income Statement

maybe prepared for activities at many levels in the company

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

Fixed manufacturing overhead

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

common

True or false: cost, profit and investment centers are segments, but sales territories, manufacturing plants, and service departments are not segments.

false

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

Fixed overhead is accounted for

The company-wide break even sales will always be ____________ the sum of the segment break even sales.

higher than

variable costing treats fixed manufacturing overhead as a(n) ____________ cost.

period

When units produced exceed units sold, net income will generally be:

higher under absorption costing than under variable costing

Differences in net operating income between absorption costing and variable costing is due to the:

timing of when fixed manufacturing overhead is expensed

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

absorption; variable

Fixed manufacturing overhead costs are included as part of work in process inventory under:

Absorption costing only

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

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

Not operating income is less under absorption costing then under variable costing when inventory for the period:

Decreases

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

fixed manufacturing overhead costs are expensed as units are sold as part of cost of good sold under ____________ costing, and expenses in full with period costs under ____________ costing.

Absorption; variable

A traceable fixed cost:

Is incurred because of the existence of the segment

True or false: absorption costing and variable costing always results in the same net operating income each year.

false

The segment margin equals the segments contribution margin less the segments ____________ fixed costs.

traceable

Place the following line items in order to construct a contribution format income statement: sales contribution margin NOI variable expenses fixed expenses

Sales, variable expenses, contribution margin, fixed expenses, net operating income

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

Under both absorption costing and variable costing, all fixed overhead incurred flows to the income statement; Absorption costing net income is equal to variable costing net income

given the following information, calculate the unit product cost under absorption costing. Direct materials: $50 per unit direct labor: $75 per unit variable manufacturing overhead: $27 per unit fixed manufacturing overhead: $30,000 units produced: 10,000 units sold: 6000

$155

Put'er There Manufactures baseball gloves. Each glove requires $22 of direct materials and $18 of direct labor. Variable manufacturing overhead cost is seven dollars per unit and fix manufacturing overhead cost is $19,000 in total. Variable selling an 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:

$47 per unit

Citrus scents produces body sprays. Each bottle has a unit product cost of $5.38. The company produced 1490 bottles this month and sold 1203 of those bottles. Total cost of good sold was:

$6472.14

Grannies touch manufactures and sells cookbooks. The company is variable cost of goods sold is $39,200. And variable selling an administrative expense is $6200. Fix manufacturing overhead is $19,700 and fixed selling an administrative expense is $9290. And income statement prepared using variable costing shows $____________ as the total fixed expenses.

28,990

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

68

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

79,398

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

variable; absorption

And I'm so option costing income statement calculates:

Gross margin by deducting cost of good sold from sales

And absorption costing income statement calculates:

Gross margin by deducting cost of good sold from sales

A segment should be discontinued when the segment:

Has a contribution margin they cannot cover traceable fixed costs; cannot cover its own costs

Variable costing treats ____________ manufacturing costs as product costs.

Only variable

Absorption costing treats fixed manufacturing overhead as a ____________ cost.

Product

A company's operations can be divided by product lines, geographical area, manufacturing plants, service centers or sales territories, which are known as ____________.

Segments

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

costs are categorized by function when using ____________ costing and by behavior when using ____________ costing.

Absorption; variable

blissful breeze manufactures and sells ceiling fans. Each fan has a unit product cost of $112 in the 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 (842x$112)

A variable costing income statement:

Calculate contribution margin while the absorption costing income statement calculate gross margin, focuses on fixed and variable expenses, while and absorption costing income statement focuses on period And product costs

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 using variable costing, fixed manufacturing overhead is:

Expensed in the period Incurred

Arabic company 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 colon

Traceable fixed cost to the plant and a common fixed cost for the individual product lines made in the plant

The segment margin is obtained by deducting the ____________ fixed cost of a segment from the segments ____________.

Traceable; contribution margin

When using absorption costing, fix manufacturing overhead cost per unit equals total fix manufacturing overhead divided by:

Units produced