Managerial Accounting Chapter 6
When units sold exceed units produced, net income under variable costing will generally be _______ net income under absorption costing.
higher than
When units produced exceed units sold, net income will generally be ______.
higher under absorption costing than under variable costing
Absorption costing can lead managers to mistakenly believe that fixed manufacturing overhead costs will ______ in total as the number of units produced increases.
increase
When a segment cannot cover its own costs, that segment should ______.
probably be dropped
U.S. GAAP and IFRS ______ publicly traded companies include segmented financial data prepared for external users that use the same methods used in internal segment reports.
require
A part or activity within an organization about which managers would like cost, revenue or profit data is called a(n
segment
Assigning common fixed costs to segments impacts ______.
segment margin only
Costs that can be traced directly to a segment ______.
should not be allocated to other segments
Differences in net operating income between absorption costing and variable costing is due to the ______.
timing of when fixed manufacturing overhead is expensed
Only costs that would disappear over time if a segment disappeared should be treated as
traceable
A segment should be discontinued when the segment ______.
-has a contribution margin that cannot cover traceable fixed costs -cannot cover its own costs
For external reporting, income statements are generally prepared using costing, while costing is used for internal decision making purposes
absorption, variable
Absorption and variable costing net income are usually different due to the accounting for ______.
fixed manufacturing overhead
The segment margin is a valuable tool for assessing the long-run ______ of a segment.
profitability
From a decision making point of view, margin is most useful for major capacity decisions and margin is most useful for short-term sales volume decisions.
segment, contribution
When there is no change in inventory, net operating income will be ______.
the same under both absorption costing and variable costing
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 ______.
$101,000
Net operating income is less under absorption costing than under variable costing when inventory for the period ______.
decreases
An example of a traceable fixed cost for General Motors' Corvette Division is the ______.
depreciation cost on the equipment used to manufacture the Corvettes
When using variable costing, fixed manufacturing overhead is:
expensed in the period incurred
True or false: Absorption costing and variable costing always result in the same net operating income each year.
false
A traceable fixed cost ______.
is incurred because of the existence of the segment
A company's operations can be divided by product lines, geographical area, manufacturing plants, service centers or sales territories, which are known as
segments
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
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
When inventory increases, which costing method generally results in higher net income?
Absorption costing
Absorption costing net operating income may not agree with the net operating income calculated for CVP analysis due to the way in which ______ is handled in absorption costing.
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
ariable costing income statements separate expenses from expenses.
fixed, variable
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 or gross profit
When using absorption costing and explaining changes in operating income, financial statement users need to be aware of changes in
inventory
Segmented income statements ______.
may be prepared for activities at many levels in a company
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
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
Selling and administrative expenses are ______ on both the absorption and variable costing income statements.
the same amount
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 ______.
$119
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 ______.
$124,020
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. The company produced 1,490 bottles this month, and sold 1,203 of those bottles. Total selling and administrative expense for the month was ______.
$5,763.15
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 ______.
$6,472.14
Discontinuing a profitable segment results in ______.
-a reduction in the overall profits of the company -the loss of the segment's revenues
Advocates of variable costing believe fixed manufacturing costs ______.
-are not caused by and cannot be meaningfully traced to specific units of production -are period expenses
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
Absorption costing and variable costing net operating income will be equal when ______.
-there is no beginning and no ending inventory -the number of units produced equals the number of units sold
When preparing a segment margin income statement ______.
-traceable fixed expenses are deducted from contribution margin -cost of goods sold consists of only variable manufacturing costs
Using absorption costing for segmented income statements can lead to ______.
-under-costing of segments -omission of upstream and downstream costs
Absorption costing is ______.
-used by most companies for both internal and external reports -required by GAAP and IFRS
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 of the following is NOT a common mistake made in preparing segmented income statements?
Computing contribution margin instead of gross margin.
True or false: Absorption costing net income may be computed by multiplying the number of units sold by the contribution margin per unit and subtracting total fixed expenses.
False
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
Advocates of costing believe fixed costs are an essential part of product production.
absorption
In order to comply with GAAP and IFRS, the ______ costing method must be used for external reporting in the United States.
absorption
Managers who believe that all manufacturing costs must be assigned to products in order to properly match the cost of production with sales are advocates of
absorption
Selling and administrative expenses ______.
are always treated as period costs
Under absorption costing product costs consist of ______.
both variable and fixed manufacturing costs
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
Under variable costing the cost of a unit of inventory does not contain ______.
fixed manufacturing overhead
When inventory decreases, cost of goods sold under absorption costing will generally be ______ cost of goods sold under variable costing.
more than
Variable costing treats ______ manufacturing costs as product costs.
only variable
Costs should be allocated to segments for internal decision-making purposes ______ the allocation base actually drives the cost being allocated.
only when
Costs should be allocated to segments for internal decision-making purposes ______.
only when the allocation base actually drives the cost being allocated
Under both variable costing and absorption costing, variable and fixed selling and administrative costs are treated as ______ costs.
period
Variable costing treats fixed manufacturing overhead as a(n) cost.
period
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 ______ for the individual product lines made in the plan
traceable fixed cost to the plant and a common fixed cost
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(n) fixed cost for the store, and a(n) fixed cost for each product line sold in the store
traceable, common
True or false: A cost that can be traced directly to a specific segment should be charged directly to that segment and not allocated to other segments.
true
link 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 ______.
$11,834.25
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 $
28,990 or 28990
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 ______ per unit.
47
Fixed manufacturing overhead costs are included as part of Work in Process inventory under ______.
absorption costing only
When using absorption costing, fixed manufacturing overhead cost per unit = Total fixed manufacturing overhead divided by ______.
units produced
Advocates of costing believe the matching principle dictates that fixed costs should be recognized as an expense in the current period
variable
Segment contribution margin equals segment revenue minus the expenses for the segment.
variable
The number of units produced does not affect net operating income when using costing.
variable
The variable costing income statement separates ______.
variable and fixed expenses
Incorrectly or arbitrarily assigning common costs to segments ______.
-holds managers responsible for costs they cannot control -could reduce the overall profits of the company -distorts the profitability of segments
Common mistakes made by companies when assigning costs to segments include ______.
-inappropriately assigning traceable fixed costs -omitting costs that should be included -arbitrarily allocating common fixed costs
GAAP and IFRS rules ______.
-require segmented financial data be included in annual reports -create problems in reconciling internal and external reports -require that the same method be used for both internal and external segment reporting
rames, Inc. manufactures large wooden picture frames. Each frame requires $19 of direct materials and $40 of direct labor. Variable manufacturing overhead cost is $9 per frame produced, and variable selling and administrative expense is $13 per frame sold. The company produces 5,000 units each month and 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 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 or 79398
If a segment is eliminated, fixed costs that are not traced to the segment will not change.
common
One mistake companies make when preparing segmented income statements is arbitrarily assigning fixed costs to segments
common
Variable costing net income may be computed by multiplying the number of units sold by the per unit and subtracting total expenses
contribution margin, fixed
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
155
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 $
17483
Variable costing income statements are based upon a ______ format.
contribution margin
True or false: Segment margin is most useful in decisions involving short-run changes in sales volume such as pricing special orders.
false
The segment margin equals the segment's contribution margin less the segment's fixed costs
traceable
The use of costing can lead to the omission of segment costs because nonmanufacturing costs are not included as costs of a product
variable, full, absorption
he use of costing can lead to the omission of segment costs because nonmanufacturing costs are not included as costs of a product.
absorption
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
Match the costing method with the way costs are separated for the method.
1. Absorption costing -matches - Manufacturing and selling and administrative 2. Manufacturing and selling and administrative Variable costing -matches- Choice, Variable and fixed Variable and fixed
