Chapter 6 Smartbook Assignment
Absorption
Financial statement users need to be aware of changes in inventory levels when using ___ costing
Absorption costing only
Fixed manufacturing overhead costs are included as part of Work In Process inventory under
Not change
If a segment is entirely eliminated, common fixed costs will ___
Deferred in the inventory account on the balance sheet
When inventory increases, absorption costing net operating income is higher than variable costing net income due to the fixed manufacturing overhead ____
Segment
A part or activity within an organization about which managers would like cost, revenue or profit data is called a ___
Higher than
When units sold exceed units produced, net income under variable costing will generally be ___ net income under absorption costing
Computing contribution margin instead of gross margin
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.
Fixed manufacturing overhead
Under variable costing the cost of a unit of inventory does not contain ___
$416,000 CM ratio = (sales - variable costs) / sales = (500,000 - 343,750) / 500,000 =(Traceable fixed expenses + common fixed costs) / CM ratio =(50,000 + 80,000) / .3125
A company has two segments with total sales of $500,000 and total variable costs of $343,750. Traceable fixed expenses are $50,000 and common fixed expenses are $80,000. The break even in dollars for the company as a whole equals $
Segments
A company's operations can be divided by product lines, geographical area, manufacturing plants, service centers or sales territories, which are known as ___
Absorption
Because nonmanufacturing costs are not included as costs of a product, the use of ___ costing can lead to the omission of segment costs
$11,834.25 Total cost of goods sold = Unit product cost * units sold 76.35 * 155
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
$11,834.25 Total cost of goods sold = Unit product cost * units sold =76.35 * 155
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
$119 Unit product cost using absorption costing = Direct materials + direct labor + variable MO + (fixed MO / units produced) =45 + 37 + 8 + (58,000 / 2,000)
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
-Omitting costs that should be included -Inappropriately assigning traceable fixed costs -Arbitrarily allocating common fixed costs
Common mistakes made by companies when assigning costs to segments include -inappropriately assigning traceable fixed costs -arbitrarily allocating common fixed costs -inappropriately allocating variable costs -omitting costs that should be included
Should not be allocated to other segments
Costs that can be traced directly to a segment ___
Variable
Direct costing or marginal costing are other terms for ___ costing
Decreases
Net operating income is less under absorption costing than under variable costing when inventory for the period ___
Only traceable
Segment break-even calculations include ___ fixed expenses
$124,020 Total variable expenses = (variable manufacturing costs per unit + variable selling and admin costs per unit) * units sold (140 + 19) * 780
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. Total variable expenses reported on Quaint Quilt's variable costing income statement for the quarter is
Both variable and fixed manufacturing
Under absorption costing product costs consist of ___
True
Under absorption costing, fixed overhead is treated like a variable cost because a portion of the total cost is allocated to each unit produced, rather than being expensed as one large sum
Period
Under both variable costing and absorption costing, variable and fixed selling and admin costs are treated as ___ costs
True
A cost that can be traced directly to a specific segment should be charged directly to that segment and not allocated to other segments
Increase
Absorption costing can lead managers to mistakenly believe that fixed manufacturing overhead costs will ___ in total as the number of units produced increases
False
Absorption costing net income may be computed by multiplying the number of units sold by the contribution margin per unit and subtracting total fixed expenses
Product
Absorption costing treats fixed manufacturing overhead as a ___ cost
(Traceable fixed expenses + common fixed expenses / Overall CM ratio
Dollar break-even for a company is calculated as ___
$155 Unit product cost under absorption costing = Direct materials + direct labor + variable MO = (fixed MO / units produced) =50 + 75 + 27 + (30,000/10,000)
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
$175,000 Break-even point in dollar sales for a segment = Traceable fixed expenses / CM ratio =$70,000 / 40%
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
-Are reported as a single amount -Equal the amounts reported on a variable costing income statement
On an absorption costing income statement, selling and administrative expenses ___ -Are reported as a single amount -Are separated into fixed and variable components -Equal the amounts reported on a variable costing income statement -Are reported exactly the same way as on a variable costing income statement
Traceable fixed costs from its contribution margin
Segment margin is obtained by deducting each segment's ___
$101,000 Total fixed expenses = Fixed MO + Fixed selling and admin expenses =42,000 + 59,000
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
Higher than
The company-wide break-even sales will always be ___ the sum of the segment break-even sales
Time when fixed overhead is expensed
The difference in net operating income between absorption costing and variable costing is due to the ___
Contribution
Variable costing income statements are based upon a ___ format
Internal income statements are generally prepared using variable costing and external income statements are generally prepared using absorption costing
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 -Internal income statements are generally prepared using variable costing and external income statements are generally prepared using absorption 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
$68 Unit product cost = Direct materials + direct labor + variable MO 19 + 40 + 9
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 $
$47.00 Unit product cost under variable costing = Direct materials + direct labor + variable MO 22 + 18 + 7 = 47
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
-Absorption costing net income is equal to variable costing net income -All fixed overhead incurred flows to the income statement under both costing methods
When the number of units produced equals the number of units sold ___ -Absorption costing net income is equal to variable costing net income -All fixed overhead incurred flows to the income statement under both costing methods -Absorption costing total expense is higher than variable costing total expense -Absorption costing total expense is lower than variable costing total expense
Common
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 ___ fixed Cost
$11,000 Avoidance of the Catalog Sales segment loss $5,000 Online sales CM margin = (60,000 / 100,000) = 60% Increase in sales = 10,000 (100,000 x 10%) Online sales segment CM = (10,000 * 60%) = $6,000 Avoidance of the Catalog Sales segment loss $5,000 Increase in Online Sales Contribution Margin $6,000 Increase in SPS products Net operating income $11,000
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
May be prepared for activities at many levels in a company
Segmented income statements___ -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 -are best used to determine which locations are profitable, rather than which product lines are profitable
-Traceable fixed expenses are deducted from contribution margin -Cost of goods sold consists of only variable manufacturing ocsts
When preparing a segment margin income statement -common fixed expenses are excluded from the statement -traceable fixed expenses are deducted from contribution margin -fixed manufacturing costs are included in cost of goods sold -cost of goods sold consists of only variable manufacturing costs
The same under both absorption and variable
When there is no change in inventory, net operating income will be ___ costing
Higher under absorption costing than under variable
When units produced exceed units sold, net income will generally be___ costing
-Variable costing emphasizes the impact of fixed costs on profit -Absorption costing makes fixed costs appear to be variable
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.
Has an overall net operating loss of $10,000
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
-Cannot cover its own costs -Has a contribution margin that cannot cover traceable fixed costs
A segment should probably be dropped when the segment ___ -has a positive segment margin but cannot cover any common fixed costs -cannot cover its own costs -has important side effects on other segments -has a contribution margin that cannot cover traceable fixed costs
Is incurred because of the existence of the segment
A traceable fixed cost___ -is incurred because of the existence of the segment -will continue if the segment is discontinued -varies with the activity level in a particular segment -supports the operations of more than one segment
Gross margin by deducting cost of goods from sales
An absorption costing income statement calculates -Net income by deducting fixed costs from contribution margin -Contribution margin by deducting variable costs from sales -Net income by deducting selling and admin costs from contribution margin -Gross margin by deducting cost of goods sold from sales
The same amount
Selling and admin expenses are ___ on both the absorption and variable costing income statements
Are always treated as period costs
Selling and administrative expenses ___ -Are always treated as period costs -Are treated as period costs under variable costing only -May be treated as either product or period costs -Are treated as period costs under absorption costing only
profitability
The segment margin is the best gauge for assessing the long-run ___ of a segment
Only work when using variable
The target profit predicted by CVP analysis will ___ costing
Depreciation on equipment used to manufacture corvettes
An example of a traceable fixed cost for General Motors' Corvette Division is the ___ -direct materials used in the production of the Corvettes -depreciation on equipment used to manufacture Corvettes -salary of the General Motors Chief Executive Officer -utilities cost of the General Motors corporate headquarters
$94,304 Total cost of goods sold = Unit product cost * Units sold 112 * 842
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 $
$17,483 Total selling and admin expenses = (variable selling and admin exp x units sold) + fixed selling and admin expenses (11.50 * 842) + 7,800
Blissful Breeze manufactures and sells ceiling fans. Variable selling and administrative expense is $11.50 per fan and fixed selling and administrative expense is $7,800 per month. If Blissful Breeze produces 900 fans and sells 842 fans this month, total selling and administrative expenses will be $
$6,472.14 Cost of goods sold = Unit product cost * Units produced $5.38 * 1,203
Citrus Scents produces body sprays. Each bottle has a unit product cost of $5.38. This month, 1,490 bottles were produced and 1,203 bottles were sold. Total cost of goods sold is ___
$5,763.15 Total selling and admin expenses = variable selling and admin expenses * units sold + fixed selling and admin expenses =1.05 * 1,203 + 4,500
Citrus Scents produces body sprays. Variable selling and administrative expense is $1.05 per bottle and fixed selling and administrative expense is $4,500 per month. If 1,490 bottles are produced and 1,203 are sold in July, total selling and administrative expense for the month will be
Variable and Absorption
The two general costing approaches used by manufacturing companies to prepare income statements are ___ costing and ___ costing
Probably be dropped
When a segment cannot cover is own costs, that segment should ___
-Omission of upstream and downstream costs -Under-costing of segments
Using absorption costing for segmented income statements can lead to -omission of upstream and downstream costs -under-costing of segments -the need to maintain two costing systems -inconsistencies between internal and external reports
Contribution margin and fixed expenses
Variable costing net income may be computed by multiplying the number of units sold by the ___ ___ per unit and subtracting total ___ expenses
$17,483 Total selling and admin expenses = Variable selling and admin exp x units sold + fixed selling and admin expenses =(11.50 * 842) + 7,800
Blissful Breeze manufactures and sells ceiling fans. Variable selling and administrative expense is $11.50 per fan and fixed selling and administrative expense is $7,800 per month. If Blissful Breeze produces 900 fans and sells 842 fans this month, total selling and administrative expenses will be $
-The segment's traceable fixed costs -The segment's contribution margin
When calculating the profit impact of discontinuing a segment, consider ___ -the segment's traceable fixed costs -the segment's contribution margin -common costs allocated to the segment
-Both income statements include product and period costs -Reported net income on the statements often differ
Which of the following statements are correct regarding income statements prepared under variable and absorption costing? -Both income statements include produce and period costs -Absorption costing categorizes costs based on cost behavior -The difference between statements is how total manufacturing overhead is accounted for -Reported net income on the statements often differ