ACCTG 202 Ch. 6 LearnSmart

Net income computed under _______ costing may not agree with the results of CVP analysis

Absorption

True or false: Cost, profit, and investment centers are segments, but sales territories, manufacturing plants, and service departments are not segments.

False

When a segment cannot cover its own costs, that segment should:

probably be dropped

Fixed manufacturing overhead is treated as a period cost and expensed in full each period.

Variable costing

When determining a segment margin, which fixed costs are charged to the segment?

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 story and a(n) __________ fixed cost for each product line sold in the store.

Traceable; Common

When should a segment be discontinued?

When the segment CM doesn't cover the traceable fixed costs When the segment margin is negative

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 (50 + 75 + 27 + (30000/10000) - 155/unit)

Absorption costing is:

Required by GAAP and IFRS Used by most companies for both internal and external reports

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

Units produced

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

Variable

Allocating __________ fixed costs to a segment may cause an otherwise profitable segment to appear unprofitable.

untracealbe

The unit product of a blender is $24. If 900 blenders are produced and 849 blenders are sold, the total cost of goods sold is:

$20,376 (849 * 24 = 20376)

Put'er There manufactures baseball gloves. Each glove requires $22 of direct materials and $18 of direct labor. Variable manufacturing 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:

$47 per unit (22 + 18 + 7 = 47)

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 cos of goods sold was:

$6,472.14 (5.38 * 1203 = 6472.14)

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 (72490 + (22 * 314) = 79398)

In order to comply with GAAP and IFRS the _______ costing method must be used for external reporting in the US.

Absorption

Fixed manufacturing overhead is treated as part of the per unit product cost and expensed as units are sold.

Absorption costing

Which of the following approaches may be used internally by manufacturing companies for costing products for the purposes of valuing inventory and cost of goods sold?

Absorption costing Variable costing

Costs are categorized by function when using ______ costing and by behavior when using ______ costing.

Absorption; Variable

When a segment is eliminated, a:

Common fixed cost will remain unchanged Traceable fixed cost will disappear

When inventory decreases, net operating income under absorption costing will be _________ _________ cost of goods sold under variable costing.

less than

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

the same under both absorption costing and variable costing.

Differences in net operating income between absorption costing and variable costing is due to the:

Timing of when fixed manufacturing overhead is expensed.

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 (42000 + 59000 = 101000)

A fixed cost that supports the operations of more than one segment, but it is not traceable in whole or part to any one segment is a(n) ___________ fixed cost.

Common

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

Common

Incorrectly or arbitrarily assigning common costs to segments:

Could reduce the overall profits of the company Holds managers responsible for costs they cannot control Distorts the profitability of segment.

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.

Which of the following costs make up the manufacturing cost per unit of a product under variable costing?

Direct labor, Direct materials, Variable MOH

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

Fixed manufacturing overhead

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

Omitting costs that should be included Arbitrarily allocating common fixed costs Inappropriately assigning traceable fixed costs

Under both variable costing and absorption costing, variable and fixed selling and administrative costs are treated as ________ costs.

Period

Absorption costing treats fixed manufacturing overhead as a ___________ cost.

Product

Use the following line items to construct an income statement using absorption costing.

Sales - Total cost of goods sold = Gross margin - Total selling and administrative costs = Net operating income

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

Sales Variable expenses Contribution margin Fixed expenses Net operating income

Which of the following statements regarding segmented reporting is incorrect?

Segmented reporting is not useful for organizations with more than one product.

A company's operations can be divided by product lines, geographical area, manufacturing plants, service centers or sales territories, which are know as:

Segments