525 Chapter 6 HW

Decide how each cost is treated on an income statement prepared using the variable costing approach. Indicate whether each cost item is treated as a period cost or product cost. 1. Direct labor 2.Fixed manufacturing overhead 3.Variable manufacturing overhead 4.Fixed selling and administrative expenses 5.Variable selling and administrative expenses

1. Product 2. Period 3. Product 4. Period 5. Period

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.

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.

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 ________. a. all overhead costs b. fixed overhead costs c. selling and administrative expenses d. variable overhead costs

b. fixed overhead costs

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. a. is greater than b. is less than c. is equal to

b. is less than

When the number of units produced is greater than the number of units sold, variable costing net operating income will be ________. a. the same as absorption costing net operating income b. greater than absorption costing net operating income c. less than absorption costing net operating income

c. less than absorption costing net operating income

Absorption costing income statements ignore ________. a. direct materials and direct labor costs b. direct and indirect cost distinctions c. product and period cost distinctions d. variable and fixed cost distinctions

d. variable and fixed cost distinctions

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?

$200,000 CM = $500,000 × 60% = $300,000 Segment margin = $300,000 - $100,000 = $200,000

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. a. is greater than b. is equal to c. is less than

a. is greater than

Which of the following costing approaches is best suited for cost-volume-profit analysis? a. Absorption b. Normal c. Standard d. Variable

d. Variable

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?

$400,000 Traceable fixed costs = $500,000 - $300,000 = $200,000 Segment margin = $600,000 - $200,000 = $400,000

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.

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

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. a. is greater than b. is less than c. is equal to

c. is equal to