Chapter 6

Select all that apply Which of the following are NOT inventorial costs under super-variable costing? Direct materials Fixed overhead Direct labor

Fixed overhead Direct labor

Variable costing income statements are based upon a _________ format. traditional contribution product vs. period costs

contribution

Total fixed costs on a super-variable costing income statement will be ___________ than total fixed costs on a traditional variable costing income statement. lower than the same as higher than

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. remain the same increase decrease

increase

Under variable costing the cost of a unit of inventory does not contain ___________. direct materials fixed manufacturing overhead direct labor variable manufacturing overhead

fixed manufacturing overhead

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. The difference between the statements is how total manufacturing overhead is accounted for. Absorption costing categorizes costs based on cost behavior. Reported net income on the statements often differ.

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

Which of the following costs are considered variable under super-variable costing? Direct materials and direct labor Direct labor and manufacturing overhead Direct materials Direct materials and manufacturing overhead

Direct materials

Super-variable costing treats all manufacturing overhead as a fixed cost. True False

True

Contribution margin computed using super-variable costing will be __________ than the contribution margin computed using traditional variable costing. higher than the same as lower than

higher than

If a segment is entirely eliminated, common fixed costs will ____________. be eliminated decrease not change

not change

Because non-manufacturing costs are not included as costs of a product, the use of ____________ costing can lead to the omission of segment costs. (Enter only one word per blank.)

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 ____________. $708,768 $101,000 $671,096 $59,000

$101,000

Put'er There manufactures baseball gloves that require $22 of direct materials and $18 of direct labor. Variable manufacturing overhead cost is $7 per glove 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 ____________. $70.75 $81.75 $47.00 $58.00

$47.00

Frames, Inc. picture frames each require $19 of direct materials and $40 of direct labor. Variable manufacturing overhead cost is $9 per frame and variable selling and administrative expense is $13 per frame sold. Total fixed manufacturing overhead cost per month is $15,000 and the company produces 5,000 frames each month. The unit product cost of each frame using variable costing is $

$68

The two general costing approaches used by manufacturing companies to prepare income statements are __________ costing and ____________ costing. (Enter only one word per blank.)

1. variable 2. absorption

Absorption costing treats fixed manufacturing overhead as a __________ cost A. product B. period

A. product

Select all that apply Which of the following statements are correct? Absorption costing makes fixed costs appear to be variable. Variable costing emphasizes the impact of fixed costs on profit. Both variable and absorption costing correctly identifies the additional fixed costs incurred to make one more unit. Both variable and absorption costing correctly identifies the additional variable costs incurred to make one more unit.

Absorption costing makes fixed costs appear to be variable. Variable costing emphasizes the impact of fixed costs on profit.

Comfy Cozy Chairs makes rockers that require $45 of direct materials and $37 of direct labor. Variable manufacturing overhead is $8 per rocker, and fixed manufacturing overhead totals $58,000. Variable selling and administrative costs are $15 per rocker, 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 A. $105 B. $119 C. $125 D. $90

B. $119

Which of the following statement is correct? Internal income statements are generally prepared using absorption costing and external income statements are generally prepared using variable costing. Both internal and external income statements are generally prepared using variable costing. Both internal and external income statements are generally prepared using absorption costing. Internal income statements are generally prepared using variable costing and external income statements are generally prepared using absorption costing.

Internal income statements are generally prepared using variable costing and external income statements are generally prepared using absorption costing.

A cost that can be traced directly to a specific segment should be charged directly to that segment and not allocated to other segments. True False

True

Fixed manufacturing overhead costs are included as part of Work in Process inventory under ___________. absorption costing only variable costing only both variable and absorption costing neither variable and absorption costing

absorption costing only

Under absorption costing product costs consist of ____________ costs. only fixed manufacturing both variable and fixed manufacturing all manufacturing and selling and administrative only variable manufacturing

both variable and fixed manufacturing

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 released to the cost of goods sold account on the income statement

deferred in the inventory account on the balance sheet

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

depreciation on equipment used to manufacture Corvettes

Differences in net operating income between super-variable and variable costing occur because of the treatment of ____________ costs under the two methods. fixed manufacturing overhead direct labor direct material selling and administrative

direct labor

Select all that apply Using absorption costing for segmented income statements can lead to ____________. inconsistencies between internal and external reports the need to maintain two costing systems omission of upstream and downstream costs under-costing of segments

omission of upstream and downstream costs under-costing of segments

Select all that apply Common mistakes made by companies when assigning costs to segments include ___________. omitting costs that should be included inappropriately allocating variable costs inappropriately assigning traceable fixed costs arbitrarily allocating common fixed costs

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

Segment break-even calculations include _____________ fixed expenses. only common both traceable and common only traceable

only traceable

Assigning common fixed costs to segments impacts ____________. segment margin only both segment margin and total corporate profit total corporate profit only neither segment margin nor total corporate profit

segment margin only

Costs that can be traced directly to a segment ____________. should be allocated to all segments should not be allocated to other segments may be treated as common costs

should not be allocated to other segments

All direct labor and manufacturing overhead is treated as fixed under ______________ costing. super-variable variable super-fixed absorption

super-variable

Only costs that would disappear over time if a segment disappeared should be treated as _______ fixed costs. (Enter only one word per blank.)

traceable

CVP analysis is enabled when using __________ costing income statements. both variable and absorption variable absorption

variable

The number of units produced does not affect net operating income when using ____________ costing. absorption both variable and absorption variable

variable

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 total Units: 10,000 produced and 6,000 sold $128 $157 $155 $152

$155

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 ___________. $175,000 $116,667 $250,000 $212,500

$175,000

A traceable fixed cost ____________ is incurred because of the existence of the segment varies with the activity level in a particular segment supports the operations of more than one segment will continue if the segment is discontinued

is incurred because of the existence of the segment

The target profit predicted by CVP analysis will ___________ costing. be the same for both variable and absorption only work when using variable only work when using absorption

only work when using variable

Which of the following is NOT a common mistake made in preparing segmented income statements? Using inappropriate allocations bases. Computing contribution margin instead of gross margin. Arbitrarily dividing common costs among segments. Omitting costs that should be included.

Computing contribution margin instead of gross margin.

Financial statement users need to be aware of changes in inventory levels when using __________ costing. variable both variable and absorption absorption

absorption

Select all that apply When calculating the profit impact of discontinuing a segment, consider _____________. the segment's contribution margin the segment's traceable fixed costs common costs allocated to the segment

the segment's contribution margin the segment's traceable fixed costs

The difference in net operating income between absorption costing and variable costing is due to the _____________. time when fixed overhead is expensed format of the income statements amount of sales revenue reported amount of selling and administrative cost expensed

time when fixed overhead is expensed

Absorption and variable costing net income are usually different due to the accounting for A.all product costs B. selling and administrative costs C. fixed manufacturing overhead D. all manufacturing overhead E. variable manufacturing overhead

C. fixed manufacturing overhead

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

may be prepared for activities at many levels in a company

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

traceable fixed cost to the plant and a common fixed cost

Select all that apply When preparing a segment margin income statement _____________. fixed manufacturing costs are included in cost of goods sold common fixed expenses are excluded from the statement traceable fixed espenses are deducted from contribution margin cost of goods sold consists of only variable manufactuing costs

traceable fixed espenses are deducted from contribution margin cost of goods sold consists of only variable manufactuing costs

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 _____________. $11,000 $5,000 $6,000 $9,000

$11,000

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. (Enter only one word per blank.)

common

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 of a store is a ___________ the product lines. a traceable fixed cost for both the store and common fixed cost for both the store and traceable fixed cost for the store and a common fixed cost for common fixed cost for the store and a traceable fixed cost for

traceable fixed cost for the store and a common fixed cost for

The variable costing income statement separates ____________. product and period costs direct and indirect expenses variable and fixed expenses selling and administrative expenses

variable and fixed expenses