Chapter 4 - Variable Costing and Segmenting Reporting

Variable manufacturing costs

A cost that would be included in product costs under both absorption costing and variable costing is:

$549,000

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations Selling price $177 Units in beginning inventory 0 Units produced 10,300 Units sold 10,000 Units in ending inventory 300 Variable Costing per unit: Direct materials $57 Direct labor $46 Variable manufacturing overhead $16 Variable selling & administrative expenses $10 Fixed Costs: Fixed Manufacturing Overhead $309,000 Fixed Selling & administrative expenses $140,000 What is the total. Cost for the month under variable costing?

they shift portions of fixed manufacturing overhead from period to period according to changing levels of inventory.

A reason why absorption costing income statements are sometimes difficult to interpret is that:

direct labor costs

The difference between super-variable costing net operating income and variable costing net operating income is explained by their different approaches to accounting for ________.

Variable

Which of the following costing approaches is best suited for cost-volume-profit analysis?

period cost

Super-variable costing treats direct labor as a ________. product cost or period cost

fixed overhead costs

The difference between absorption costing net operating income and variable costing net operating income can be explained by the way these two methods account for ________.

variable and fixed cost distinctions

Absorption costing income statements ignore ________.

True

Absorption costing treats all manufacturing costs as product costs. True or false?

False. It will increase.

All other things the same, if a division traceable fixed expenses decrease then the division segment margin will decrease. True or false?

Fixed Costs/Contribution Margin Ratio

Break Even Formula

Sales - Variable Cost of Goods Sold

Contribution Margin Formula

$32,000 = (30+20+10) + (100,000/500)= 80X400

January Beginning inventory 0 Units produced 500 Units sold 400 Ending inventory 100 Selling price $100 Direct materials 30 Direct labor 20 Variable manufacturing overhead 10 Variable selling and administrative expenses 7 Fixed manufacturing overhead $10,000 per month Fixed selling and administrative expenses 3,000 per month What is the cost of goods sold for the month of January using the absorption costing method?

False

Under variable costing, an increase in fixed manufacturing overhead will affect the unit product cost. True or false?

True

Variable costing is more compatible with cost volume profit analysis than is absorption costing. True or false?

period costs

Variable selling and administrative costs are classified as a product or period cost?

Be equal only when production and sales are equal

Generally speaking, net operating income under variable and absorption costing will

$13,200 = (100X400) - (30+20+10)*400 - 7*400

January Beginning inventory 0 Units produced 500 Units sold 400 Ending inventory 100 Selling price $100 Direct materials 30 Direct labor 20 Variable manufacturing overhead 10 Variable selling and administrative expenses 7 Fixed manufacturing overhead $10,000 per month Fixed selling and administrative expenses 3,000 per month What is the company's contribution margin for January?

$200,000= $500,000 - (500,000*1 - .60) - 100,000

Max, Inc., has two divisions, South Division and North Division. South Division's sales, contribution margin ratio, and traceable fixed expenses are $500,000, 60%, and $100,000, respectively. What is the segment margin for the South Division?

$92,000 ($40k + $10k + $2k + $140/3)

Selling price$200,000 Direct materials used in production 40,000 Direct labor 10,000 Variable manufacturing overhead 2,000 Fixed manufacturing overhead $120,000 Variable selling and administrative expenses 20,000 Fixed selling and administrative expenses 40,000 FebruaryBeginning Inventory 0 Units Produced 3 Units Sold 3 Ending inventory 0 Assuming the absorption costing method is used, what is the total manufacturing costs per unit added to work in process during the month of February?

$52,000 ($40k + $10k+ $2k)

Selling price$200,000 Direct materials used in production 40,000 Direct labor 10,000 Variable manufacturing overhead 2,000 Fixed manufacturing overhead $140,000 Variable selling and administrative expenses 20,000 Fixed selling and administrative expenses 40,000 Assuming the variable costing method is used, what is the total manufacturing costs added to work in process during the month of February?

variable costing

The costing method that treats all fixed costs as period costs is:

product cost

Variable Manufacturing Overhead is classified as a product or period cost?

less than absorption costing net operating income

When the number of units produced is greater than the number of units sold, variable costing net operating income will be ________.

$400,000

Bovine Corporation has two divisions: televisions and mobile phones. The mobile phone division has a contribution margin of $600,000. The company's common fixed costs and total traceable fixed costs are $100,000 and $500,000 respectively. Assuming the traceable fixed costs of the television division are $300,000, what is the segment margin of the mobile phone division?

$83,700 = (90,000 - 63,000*.10)

Chao, Inc., a service provider, has two divisions. The firm's most recent annual contribution format segmented income statement appears below. Total Company Eastern Western Sales $450,000 $90,000 $360,000 Variable expenses 243,000 27,000 216,000 Contribution margin 207,000 63,000 144,000 Traceable fixed expenses 100,800 46,800 54,000 Division segment margin 106,200 $16,200 $90,000 Common fixed expenses 72,000 Net operating income$34,200 If the company eliminates the Western Division and the Eastern Division sales increase by 10% as a result, how much will the company's net operating income decrease?

Contribution Margin/Sales

Contribution Margin Ratio Formula

product cost

Direct Labor is classified as a product or period cost?

period cost

Fixed Manufacturing Overhead is classified as a product or period cost?

period cost

Fixed selling and administrative costs are classified as a product or period cost?

is equal to

When the units produced are equal to the units sold, the net operating income computed using the variable costing method is ______ the net operating income using the absorption costing method.

is greater than

When the units produced are less than the units sold, the net operating income computed using the variable costing method is ______ the net operating income using the absorption costing method.

is less than

When the units produced exceed the units sold, the net operating income computed using the variable costing method is ______ the net operating income using the absorption costing method.

direct material costs

Which of the following costs at a manufacturing company would be treated as a product cost under variable costing? a. direct material cost b. property taxes on the factory c. building sales manager salary d. sales commissions

They assign the costs of the corporate headquarters buildings to segments because the segments must cover those costs.

Which of the following is a common mistake made by companies when assigning costs to segments? a. They use allocation bases that drive the costs when assigning costs to segments. b. They trace fixed expenses to segments when it is feasible to do so. c. They assign the costs of the corporate headquarters buildings to segments because the segments must cover those costs. d. They include "upstream" and "downstream" costs when preparing profitability analyses that relate to individual product costs.

b. The segment margin is obtained by deducting the common fixed costs that have been allocated to a segment from that segment's contribution margin

Which of the following statements about the segment margin is not true? a. In preparing a segmented income statement, the variable expenses are deducted from sales to yield the contribution margin for each segment. b. The segment margin is obtained by deducting the common fixed costs that have been allocated to a segment from that segment's contribution margin. c. The segment margin represents the margin available after a segment has covered all of its own costs. d. The segment margin is the best gauge of the long-run profitability of a segment because it includes only those costs that are caused by the segment.