Managerial Test 2 Ch 6

Absorption costing is Blank______.

-required by GAAP and IFRS -used by most companies for both internal and external reports

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

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

-Reported net income on the statements often differ. -Both income statements include product and period costs.

Place the following line items in order to construct a contribution format income statement.

-Sales -V.E. -Contribution Margin -Fixed Expenses -Net Operating Income

Common mistakes made by companies when assigning costs to segments include Blank______.

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

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

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 absorption costing, fixed manufacturing overhead cost per unit = Total fixed manufacturing overhead cost divided by units:

produced

Absorption costing treats fixed manufacturing overhead as a _____ cost.

product

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 cost that can be traced directly to a specific segment should be charged directly to that segment and not allocated to other segments

true

Using absorption costing for segmented income statements can lead to ______.

under-costing of segments omission of upstream and downstream costs

One mistake companies make when preparing segmented income statements is arbitrarily assigning ___________ fixed costs to segments

untraceable

Segment contribution margin equals segment revenue minus the ______ expenses for the segment.

variable

Direct costing or marginal costing are other terms for _________

variable costing

Costs are separated between variable and fixed expenses when using ______ costing, whereas ______ costing separates costs between product and period.

variable, absorption

Which of the following is NOT a common mistake made in preparing segmented income statements?

Computing contribution margin instead of gross margin

In order to comply with GAAP and IFRS, the Blank______ costing method must be used for external reporting in the United States.

absorption

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

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

common

When a segment is eliminated, a Blank______.

common fixed cost will remain unchanged traceable fixed cost will disappear

Variable costing income statements are based upon a Blank______ format.

contribution

A traceable fixed cost ______.

is incurred because of the existence of the segment

The segment margin represents the Blank______.

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

Segment break-even calculations include Blank______ fixed expenses.

only traceable

Variable costing treats Blank______ manufacturing costs as product costs.

only variable

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 of a store is the ___________ fixed cost of the store and the __________ fixed cost of each product line sold in the store.

traceable, common

Variable costing income statements separate ______ expenses from ______ expenses

variable, fixed

GAAP and IFRS rules for publicly traded companies Blank______.

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

Fixed manufacturing overhead costs are expensed as units sold as part of cost of goods sold under ___________, and expensed in full with period costs under _________ costing.

absorption, variable

When using variable costing, fixed manufacturing overhead is _______

expensed in the period incurred

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

time when fixed overhead is expensed

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

False

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

depreciation on equipment used to manufacture Corvettes

Product costs under absorption costing include Blank______.

direct labor fixed manufacturing overhead direct materials variable manufacturing overhead

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

fixed manufacturing overhead

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

fixed overhead is accounted for

Variable costing treats fixed manufacturing overhead as a(n)

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

Assigning common fixed costs to segments impacts____________

segment margin only