ACCT 2210 Exam 2

Contribution margin ___

becomes profit after fixed expenses are covered

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

If the total contribution margin is less than the total fixed expenses, a ___ occurs

net loss

If a segment is entirely eliminated, common fixed costs will ___

not change

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 a segment cannot cover its own costs, that segment should ___

probably be dropped

When calculating the profit impact of discontinuing a segment, consider ___

the segment's contribution margin and traceable fixed costs

Only costs that would disappear over time if a segment disappeared should be treated as ___ fixed costs

traceable

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

Once the break-even point is reached, the sale of an additional unit increases contribution margin by an amount that is ___ the increase in net operating income

equal to

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

Contribution margin is first used to cover ___ expenses. Once the break-even point has been reached, contribution margin becomes ___

fixed; profit

A segment should probably be dropped when the segment ___

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

A company with three segments has $10,000 in common fixed expenses. All three segments are at the break-even point. As a result, the company ___

has an overall net operating loss of $10,000

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

higher than

Absorption costing can lead managers to mistakenly believe that fixed manufacturing overhead costs will ___ in total as the number of units produced increases

increase

The contribution margin statement is primarily used for ___

internal decision making

Segmented income statements ___

may be prepared for activities at many levels in a company

Segment break-even calculations include ___ fixed expenses

only traceable

Costs should be allocated to segments for internal decision-making purposes ___

only when the allocation base actually drives the cost being allocated

GAAP and IFRS rules ___

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

Absorption costing is ___

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

Assigning common fixed costs to segments impacts ___

segment margin only

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 ___ costing

the same under both absorption and variable

The break-even point is reached when the contribution margin is equal to ___

total fixed expenses

The segment margin equals the segment's contribution margin less the segment's ___ fixed costs

traceable

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

The segment margin is obtained by deducting the ___ fixed costs of a segment from the segment's ___

traceable; contribution margin

Using absorption costing for segmented income statements can lead to___

under-costing of segments; omission of upstream and downstream

When preparing a segment margin income statement ___

cost of goods sold consists of only variable manufacturing costs; traceable fixed expenses are deducted from contribution margin

Incorrectly or arbitrarily assigning common costs to segments ___

could reduce the overall profits of the company; distorts the profitability of segments; holds managers responsible for costs they cannot control

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

higher than

Segment margin is most useful in decisions involving short-run changes in sales volume such as pricing special orders (T or F)

False

Which of the following are assumptions of cost-volume-profit analysis?

in multi product companies, the sales mix is constant; costs are linear and can be accurately divided into variable and fixed elements

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

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

A cost that can be traced directly to a specific segment should be charged directly to that segment and not allocated to other segments (T or F)

True

Discontinuing a profitable segment results in ___

a reduction in the overall profits of the company; the loss of the segment's revenues

Because nonmanufacturing costs are not included as costs of a product, the use of ___ costing can lead to the omission of segment costs

absorption

Financial statement users need to be aware of changes in inventory levels when using ___ costing

absorption

Dollar break-even for a company is calculated as ___

(traceable fixed expenses + common fixed expenses) / overall cm ratio

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

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

When a segment is eliminated, a ___

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

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

depreciation cost on the equipment used to manufacture the Corvettes