Managerial Accounting Practice Questions

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

When a segment is eliminated, a:

- common fixed cost will remain unchanged - traceable fixed cost will disappear

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

GAAP and IFRS rules:

- create problems in reconciling internal and external reports - require segmented financial data be included in annual reports - require that the same method be used for both internal and external segment reporting

Using variable costing and the contribution approach for internal decision making:

- enable CVP analysis - supports decision making - facilitates explaining changes in net income

absorption costing can lead managers to mistakenly believe that fixed manufacturing overhead costs will _____________ as the number of units produced increases

increases in total

Costs should be allocated to segments for internal decision making purposes:

only when the allocation baes actually drives the cost being allocated

Decision problems that could occur when using absorption costing include inappropriate _______________ decisions, and decisions made to ____________ products, that are, in fact, profitable

pricing; drop

Absorption costing treats fixed manufacturing overhead as a ___________ cost.

product

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

profitability

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

segment

Higado Confectionery Corporation has a number of store locations throughout North America. In income statements segmented by store, which of the following would be considered a common fixed cost with respect to the stores?

the cost of corporate advertising aired during the Super Bowl

When there is no change in inventory, net operating income will be:

the same under both absorption costing and variable costing

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

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

one mistake companies make when preparing segmented income statements is arbitrarily assigning __________ fixed costs to segments

untraceable

a variable costing income statement:

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

A segment should be discontinued when the segment:

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

Common mistakes made by companies when assigning costs to segments include:

- omitting costs that should be included - inappropriately assigning traceable fixed costs - arbitrarily allocating common fixed costs

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

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

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

T/F: The smaller the contribution margin ratio, the smaller the amount of sales required to cover a given amount of fixed expenses.

False

T/F: For a capital intensive, automated company the break-even point will tend to be higher and the margin of safety will be lower than for a less capital intensive company with the same sales.

True

Net income computed under_____________ costing may not agree with the results of CVP analysis.

absorption

The use of ______________ costing that can lead to the omission of segment cost because nonmanufactoring costs are not included as costs of a product.

absorption

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

deferred in the inventory account on the balance sheet

An example of a traceable fixed cost for General Motors' Corvette division is the:

depreciation cost on the equipment used to manufacture the corvettes

T/F: Cost, profit and investment centers are segments, but sales territories, manufacturing plants, and service departments are not segments.

false

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

fixed manufacturing overhead

Net operating income under absorption costing is generally ___________ net operating income under variable costing in periods in which inventory increases.

higher than

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

higher than

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

higher than