CH.7 Learning Obj. Overview

Which of the following statements about the segment margin is not true?

The segment margin is obtained by deducting the common fixed costs that have been allocated to a segment from that segment's contribution margin.

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 cost 2. period cost 3. product cost 4. period cost 5. period cost

JanuaryBeginning inventory 0Units produced 500Units sold 400Ending inventory 100Excerpt from Wallis CorporationPer Unit Per MonthSelling price $100Direct materials $30Direct labor $20Variable manufacturing overhead 10Variable selling and administrative expenses 7Fixed manufacturing overhead $ 10,000Fixed selling and administrative expenses 3,000What is the company's contribution margin for January?

1Per unit product cost = $30 direct materials cost per unit + $20 direct labor cost per unit + $10 variable manufacturing cost per unit + $20 fixed manufacturing overhead cost per unit (or $10,000 fixed manufacturing overhead ÷ 500 units produced) = $80Cost of goods sold = 400 units sold × $80 per unit =$32,000

Chao, Inc., a service provider, has two divisions. The firm's most recent annual contribution format segmented income statement appears below.Total Company Eastern Division Western DivisionSales $ 450,000 $ 90,000 $ 360,000Variable expenses 243,000 27,000 216,000Contribution margin 207,000 63,000 144,000Traceable fixed expenses 100,800 46,800 54,000Division segment margin 106,200 $ 16,200 90,000Common fixed expenses 72,000Net operating income $34,200If the company eliminates the Western Division and the Eastern Division sales increase by 10% as a result, how much will the company's net operating income decrease?

Because the fixed costs will not change, the entire $6,300 would result in increased net operating income for the company.Change in company's net operating income = Increase in Western Division CM of $6,300 − Decrease of Eastern Division segment margin of $90,000 = $(83,700)

Per unit Per Month Selling price $200,000 Direct materials used in production 40,000 Direct labor 10,000 Variable manufacturing overhead 2,000 Fixed manufacturing overhead $140,000 Variable selling and administrative expenses 20,000 Fixed selling and administrative expenses 40,000 Assuming the variable costing method is used, what is the total manufacturing costs added to work in process during the month of February?

DM+DL+VMOVHD= $52,000

Per unit Per Month Selling price $200,000 Direct materials used in production 40,000 Direct labor 10,000 Variable manufacturing overhead 2,000 Fixed manufacturing overhead $140,000 Variable selling and administrative expenses 20,000 Fixed selling and administrative expenses 40,000 February Beginning Inventory0 Units Produced3 Units Sold3 Ending inventory0 Assuming the absorption costing method is used, what is the total manufacturing costs added to work in process during the month of February?

FMOVHD = 120,000/3 = 40,000 =40,000 + 40,000 + 10,000 + 2,000 =92,000

Parcel CorporationSegment Income StatementTotal Company American Division International DivisionSales $ 1,520,000 $ 720,000 $ 800,000Variable expenses 448,000 288,000 160,000Contribution margin 1,072,000 432,000 640,000Traceable fixed expenses 712,000 360,000 352,000Division segment margin 360,000 $72,000 $ 288,000Common fixed expenses 141,800Net operating income $218,200What is the break-even point for the American Division?

Segment break-even point = Traceable fixed expenses of $352,000 ÷ Segment contribution margin ratio of 80% (= $640,000 ÷ $800,000) =$440,000

Which of the following is a common mistake made by companies when assigning costs to segments?

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

JanuaryBeginning inventory 0Units produced 500Units sold 400Ending inventory 100Excerpt from Wallis CorporationPer Unit Per MonthSelling price $100Direct materials $30Direct labor $20Variable manufacturing overhead 10Variable selling and administrative expenses 7Fixed manufacturing overhead $ 10,000Fixed selling and administrative expenses 3,000What is the company's contribution margin for January?

Variable cost per unit = (Direct materials cost of $30 per unit + Direct labor cost of $20 per unit + Variable manufacturing cost per unit of $10) + Variable selling & administrative expenses per unit of $7 = $60 + $7 = $67 Contribution margin = (Sales price of $100 − Variable cost per unit of $67) × Units sold of 400 = $33 × 400 = $13,200

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?

contribution margin = Sales of $500,000 × 60% contribution margin = $300,000Segment margin = Contribution margin of $300,000 - Traceable fixed expenses of $100,000 = $200,000

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 ________.

fixed overhead 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. 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. 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.

is equal to , is greater than , is less than

Which of the following costing approaches is best suited for cost-volume-profit analysis?

variable

Absorption costing income statements ignore ________.

variable and fixed cost distinctions

When the number of units produced is greater than the number of units sold, variable costing net operating income will be ________.

less than absorption costing net operating income

Parcel CorporationSegment Income StatementTotal Company American Division International DivisionSales $ 1,520,000 $ 720,000 $ 800,000Variable expenses 448,000 288,000 160,000Contribution margin 1,072,000 432,000 640,000Traceable fixed expenses 712,000 360,000 352,000Division segment margin 360,000 $72,000 $ 288,000Common fixed expenses 141,800Net operating income $218,200What is the break-even point for the American Division?

Segment break-even point = Traceable fixed expenses of $360,000 ÷ Segment contribution margin ratio of 60% (= $432,000 ÷ $720,000) =$600,000

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?

The traceable fixed costs of the mobile phone division is $200,000 ($500,000 total traceable fixed costs minus $300,000 traceable fixed costs of television division).segment margin is $400,000 ($600,000 contribution margin minus the $200,000 traceable fixed costs).