Chapter 4

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 $________

79398

Blissful Breeze manufactures and sells ceiling fans. Each fan has a unit product cost of $112 and a unit selling price of $190. If Blissful Breeze produces 900 fans and sells 842 fans this month, the total cost of goods sold will be $_______.

94304 product cost X amount sold$112 X 842 = $94,304

Select all that apply Product costs under absorption costing are: Direct materials Variable manufacturing overhead Direct labor Fixed selling and administrative Variable selling and administrative Fixed manufacturing overhead

Direct materials Variable manufacturing overhead Direct labor Fixed manufacturing overhead

Net operating income is less under absorption costing than under variable costing when inventory for the period: Multiple choice question. remains the same increases decreases

decreases

The difference between reported net income on variable costing and absorption costing income statements is based on how: Multiple choice question. cost classifications are defined the statements are formated expenses are organized fixed overhead is accounted for

fixed overhead is accounted for

Blink sells and manufactures frames for eyeglasses. The unit product cost for frame #47320 is $76.35. Last period, Blink produced 200 frames and sold 155 of them. Total cost of goods sold equals: Multiple choice question. $3,435.75 $11,834.25 $15,270.00 $231.35

$11,834.25 Reason: $76.35 x 155 = $11,834.25

When inventory increases, which costing method generally results in higher net income? Multiple choice question. Variable costing Absorption costing The two costing methods would show the same net income

Absorption costing

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

absorption; variable

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

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

common

When a segment cannot cover its own costs, that segment should: Multiple choice question. probably be dropped be combined with another profitable segment recalculate its segment margin without including common fixed costs

probably be dropped

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, manufactured, made, or completed

Direct costing or marginal costing are other terms for _________ costing.

variable

Under absorption costing product costs consist of: Multiple choice question. all manufacturing and selling and administrative costs only fixed manufacturing costs both variable and fixed manufacturing costs only variable manufacturing costs

both variable and fixed manufacturing costs

Differences in net operating income between absorption costing and variable costing is due to the: Multiple choice question. amount of selling and administrative cost expensed amount of sales revenue reported format of the income statements timing of when fixed manufacturing overhead is expensed

timing of when fixed manufacturing overhead is expensed

Variable costing income statements separate ________ expenses from _______ expenses.

variable; fixed

Segmented income statements: Multiple choice question. are best used to determine which locations are profitable, rather than which product lines are profitable may be prepared for the various departments in the company, but not for specific product lines may be prepared for activities at many levels in a company should only be used for profit centers

may be prepared for activities at many levels in a company

The two general costing approaches used by manufacturing companies to prepare income statements are ________ costing and ________ costing

variable; absorption

JPL Company has two segments - Retail and Commercial. The Retail segment has a contribution margin ratio of 40% and traceable fixed expenses of $70,000. Commercial has traceable fixed expenses of $50,000 and a contribution margin ratio of 55%. The company also has $30,000 of common fixed expenses. The break-even point in dollar sales for the Retail segment equals: Multiple choice question. $212,500 $116,667 $175,000 $250,000

$175000 Reason: $70,000/40% = $175,000

Select all that apply When a segment is eliminated, a: Multiple select question. traceable fixed cost will remain unchanged common fixed cost will remain unchanged common fixed cost will disappear traceable fixed cost will disappear

common fixed cost will remain unchanged traceable fixed cost will disappear

When inventory decreases, cost of goods sold under absorption costing will be ______ cost of goods sold under variable costing. Multiple choice question. less than more than equal to

more than

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

segment

For external reporting, income statements are generally prepared using _________ costing, and _______ costing is used for internal decision making purposes.

absorption; variable

The company-wide break-even sales will always be ______ the sum of the segment break-even sales. Multiple choice question. higher than either higher or lower than equal to lower than

higher than

When units sold exceed units produced, net income under variable costing will generally be _______ net income under absorption costing. lower than higher than equal to

higher than

If a segment is entirely eliminated, common fixed costs will: Multiple choice question. be eliminated not change decrease

not change

The segment margin is a valuable tool for assessing the long-run ______ of a segment. Multiple choice question. revenue potential profitability return on investment adaptability

profitability

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

variable, absorption

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: Multiple choice question. $708,768 $671,096 $101,000 $59,000

$101,000 Reason: $42,000 + $59,000 = $101,000

Select all that apply Which of the following statements are correct regarding income statements prepared under variable and absorption costing? Both income statements include product and period costs. Absorption costing categorizes costs based on cost behavior. Reported net income on the statements often differ. The difference between the statements is how total manufacturing overhead is accounted for.

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

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

False Reason: Absorption costing and variable costing will only produce the same amount of net operating income when the number of units produced is equal to the number of units sold.

An absorption costing income statement calculates: Multiple choice question. net income by deducting fixed costs from contribution margin contribution margin by deducting variable costs from sales gross margin by deducting cost of goods sold from sales net income by deducting selling and administrative costs from contribution margin

gross margin by deducting cost of goods sold from sales

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: Multiple choice question. is at the break-even point has an overall net operating loss of $10,000 has an overall net operating income of $10,000

has an overall net operating loss of $10,000 Reason: If all three segments are at the break-even point, common fixed expenses have not been covered.

Net operating income under absorption costing is generally ______ net operating income under variable costing in periods in which inventory increases. Multiple choice question. higher than less than equal to

higher than

Segment break-even calculations include: Multiple choice question. only traceable fixed expenses only common fixed expenses both traceable and common fixed expenses

only traceable fixed expenses

Multiple choice question. Variable costing treats ______ manufacturing costs as product costs. only fixed only variable no all

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 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

Comfy Cozy Chairs makes and sells rockers. Each rocker requires $45 of direct materials and $37 of direct labor. Variable manufacturing overhead amounts to $8 per unit, and fixed manufacturing overhead totals $58,000. Variable selling and administrative costs amount to $15 per unit, and fixed selling and administrative costs total $102,000. During the period, 2,000 rockers were produced and 1,640 were sold. The unit product cost using absorption costing is Multiple choice question. $90 $105 $125 $119

$119 Reason: $45 + $37 + $8 + ($58,000/2,000) = $119

The Quaint Quilt produces and sells handmade quilts. Variable manufacturing costs total $140 per quilt. Fixed manufacturing overhead totals $68,250 per quarter. Variable selling and administrative costs are $19 per quilt sold, and fixed selling and administrative costs are $50,000 per quarter. Last quarter, the company produced 910 quilts and sold 780 quilts. The total variable cost reported on Quaint Quilt's variable costing income statement is: Multiple choice question. $109,200 $144,690 $167,700 $124,020

$124,020 Reason: ($140 + $19) x 780 quilts sold = $124,020

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. Multiple choice question. $157 $128 $152 $155

$155 Reason: $50 + $75 + $27 + ($30,000 ÷ 10,000) = $155 per unit

Put'er There manufactures baseball gloves. Each glove requires $22 of direct materials and $18 of direct labor. Variable manufacturing overhead 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: Multiple choice question. $81.75 per unit $58 per unit $47 per unit $70.75 per unit

$47 per unit Reason: Unit product cost = $22 + $18 + $7 = $47. Selling and administrative costs are never considered part of product cost.

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

False Reason: A segment is any part or activity of an organization about which managers would like cost, revenue, or profit data.

The segment margin is obtained by deducting the ______ fixed costs of a segment from the segment's ______. Multiple choice question. traceable; revenues common; revenues common; contribution margin traceable; contribution margin

traceable; contribution margin

Select all that apply A variable costing income statement: Multiple select question. focuses on fixed and variable expenses, while an absorption costing income statement focuses on period and product costs does not include fixed manufacturing overhead, which is included on an absorption costing income statement is constructed exactly like an absorption costing income statement calculates contribution margin while the absorption costing income statement calculates gross margin

focuses on fixed and variable expenses, while an absorption costing income statement focuses on period and product costs calculates contribution margin while the absorption costing income statement calculates gross margin

Select all that apply When the number of units produced equals the number of units sold: absorption costing total expense is greater than variable costing total expense. under both absorption costing and variable costing, all fixed overhead incurred flows to the income statement. absorption costing net income is less than variable costing net income. absorption costing net income is greater than variable costing net income. absorption costing net income is equal to variable costing net income. absorption costing total expense is less than variable costing total expense.

under both absorption costing and variable costing, all fixed overhead incurred flows to the income statement. absorption costing net income is equal to variable costing net income

When using absorption costing, fixed manufacturing overhead cost per unit = Total fixed manufacturing overhead divided by: Multiple choice question. units in ending inventory units produced - units sold units sold units produced

units produced

SPS Products has two divisions—Catalog Sales and Online Sales. For the last quarter the Catalog Sales segment margin was ($5,000). Online sales were $100,000. Online Sales contribution margin was $60,000, and its segment margin was $40,000. If Catalog Sales are discontinued, it is estimated that online sales will increase by 10%. Discontinuing Catalog Sales should increase company profits by: Multiple choice question. $9,000 $6,000 $5,000 $11,000

$11,000 Reason: Increased online sales contribution margin ($100,000 x 10% x $60,000/$100,000) is $6,000 + $5,000 saved from stopping catalog sales = $11,000.

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

20376 Reason: 849 x $24

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 cost of goods sold was: Multiple choice question. $6,472.14 $8,016.20 $1,544.06

$6,472.14 Reason: $5.38 x 1,203 = $6,472.14

Granny's Touch manufactures and sells cookbooks. The company's variable cost of goods sold is $39,200 and variable selling and administrative expense is $6,200. Fixed manufacturing overhead is $19,700 and fixed selling and administrative expense is $9,290. An income statement prepared using variable costing shows $___________

28,990

An example of a traceable fixed cost for General Motors' Corvette Division is the: Multiple choice question. depreciation cost on the equipment used to manufacture the Corvettes salary of the General Motors Chief Executive Officer direct materials used in the production of the Corvettes utilities cost of the General Motors corporate headquarters

depreciation cost on the equipment used to manufacture the Corvettes

The general guideline is to treat as traceable only those costs that would ________.

disappear, go away, or stop

Absorption and variable costing net income are usually different due to the accounting for: Multiple choice question. fixed manufacturing overhead variable manufacturing overhead selling and administrative costs all manufacturing overhead all product costs

fixed manufacturing overhead

When there is no change in inventory, net operating income will be: Multiple choice question. the same under both absorption costing and variable costing higher under variable costing than under absorption costing higher under absorption costing than under variable costing

the same under both absorption costing and variable costing

Arbot Co. manufactures appliances at three manufacturing facilities in the United States. Each location has a plant manager who oversees the manufacturing process for that location. Segmented income statements are prepared for each plant and for each product manufactured in the plant. The salary of each plant manager is a: Multiple choice question. common fixed cost for both the plant and the individual product lines made in the plant common fixed cost for the plant and a traceable fixed cost for the individual product lines made in the plant traceable fixed cost for both the plant and the individual product lines made in the plant traceable fixed cost to the plant and a common fixed cost for the individual product lines made in the plant

traceable fixed cost to the plant and a common fixed cost for the individual product lines made in the plant

Select all that apply When preparing a contribution margin income statement: Multiple select question. variable and fixed costs are listed in separate sections of the statement fixed manufacturing costs are included in cost of goods sold a gross margin is computed cost of goods sold consists of only variable manufacturing costs

variable and fixed costs are listed in separate sections of the statement cost of goods sold consists of only variable manufacturing costs

Select all that apply A segment should be discontinued when the segment: has a positive segment margin but cannot cover any common fixed costs has important side effects on other segments has a contribution margin that cannot cover traceable fixed costs cannot cover its own costs

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

Frames, Inc. manufactures large wooden picture frames. Each frame requires $19 of direct materials and $40 of direct labor. Variable manufacturing overhead cost is $9 per frame produced, and variable selling and administrative expense is $13 per frame sold. The company produces 5,000 units each month and total fixed manufacturing overhead cost per month is $15,000. The unit product cost of each frame using variable costing is $________.

$68 Variable Costing Unit Product Cost=Direct materials + Direct Labor + Variable Manufacturing overhead=$19+$40+$9= $68