Chapter 6: Variable Costing and Segment

Variable costing treats fixed manufacturing overhead as a(n) ____ cost.

period

Variable costing treats fixed manufacturing overhead as a(n) ________ cost.

period cost

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

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

The segment margin is a valuable too for assessing the long-run _______ of a segment

profitability

Income statement under absorption costing:

sales total cost of goods sold gross margin total selling and admin expenses net operating income

Using variable costing and the contribution approach for internal decision making:

supports decision making; enables CVP analysis; facilitates explaining changes in net income

Net operating income is less under absorption costing than under variable costing when inventory for the period:

decreases

When using variable costing, fixed manufacturing overhead is:

expensed in the period incurred

Absorption costing net operating income may not agree with the net operating income calculated for CVP analysis due to the way in which ________ is handled in absorption costing.

fixed manufacturing overhead

A Variable costing income statement...

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

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

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

Match the costing method with the way costs are separated for the method.

Absorption costing separates (manufacturing) costs from period (selling and administrative costs). Variable costing deducts all variable expenses from sales to determine contribution margin and all fixed expenses from contribution margin to determine income or loss.

Which of the following statements is correct?

It is important to avoid allocating common fixed costs to segments

Fixed manufacturing overhead is a period cost under variable costing and a product under _____________ costing.

absorption

In order to comply with GAAP, and IFRS, the ______ costing method must be used for external reporting in the United States.

absorption

Costs are categorized by function when using _________ costing and by behavior when using ________ costing.

absorption; variable

Which of the following statements is correct regarding segmented reporting:?

traceable fixed costs are charged to segments, but common fixed costs are not

Direct costing or marginal costing are other terms for

variable costing

Contrast the way fixed manufacturing overhead costs are treated in absorption costing versus variable costing.

Variable costing=fixed manufacturing overhead is treated as a period cost and expensed in full each period Absorption costing=fixed manufacturing overhead is treated as part of the per unit product cost and expensed as units are sold

When should a discount be discontinued?

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

Discontinuing a profitable segment results in:

a reduction in the overall profits of the company; the loss of the segment's revenues

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

absorption; variable

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

common

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

segments

Absorption costing and variable costing net operating income will be equal when:

there is no beginning and no ending inventory; the number of units produced equals the number of units sold

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

timing of when fixed manufacturing overhead is expensed

_________ costing separates costs between variable and fixed, whereas ____________ costing separates costs between product and period.

variable ; absorption

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?

variable and absorption costing

Costs are separate between variable and fixed expenses when using ________ costing, whereas ________ costing separates costs between product and period.

variable; absorption