Chapter 7. Variable Costing and Segment Reporting: Tools for Management

Pataasin ang iyong marka sa homework at exams ngayon gamit ang Quizwiz!

1. Sales 2. Variable expenses 3. Contribution margin 4. Fixed expenses 5. Net operating income

Place the following line items in order to construct a contribution format income statement.

- under-costing of segments - omission of upstream and downstream costs

Using absorption costing for segmented income statements can lead to _____.

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

Using variable costing and the contribution approach for internal decision making _____.

Variable costing

Variable and fixed - Variable costing deducts all variable expenses from sales to determine contribution margin and all fixed expenses from contribution margin to determine income or loss.

only variable

Variable costing treats _____ manufacturing costs as product costs.

- common fixed cost will remain unchanged - traceable fixed cost will disappear

When a segment is eliminated, a _____.

Absorption costing

When inventory increases, which costing method generally results in higher net income?

- absorption - variable

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.

- are period expenses - are not caused by and cannot be meaningfully traced to specific units of production

Advocates of variable costing believe fixed manufacturing costs _____.

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(n) _____ fixed cost.

segment

A part or activity within an organization about which managers would like cost, revenue or profit data is called a(n)

- required by GAAP and IFRS - used by most companies for both internal and external reports

Absorption costing _____.

product

Absorption costing treats fixed manufacturing overhead as _____ cost.

absorption

Advocates of ______ costing believe fixed costs are an essential part of product production.

- pricing - drop

Decision-making problems that could occur when using absorption costing include inappropriate _____ decisions, and decisions made to _____ products that are, in fact, profitable.

timing of when fixed manufacturing overhead is expensed

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

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

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 _____ per unit.

variable

Segment contribution margin equals segment revenue minus the _____ expenses for the segment.

margin available after a segment has covered all of its own costs

The segment margin represents the _____.

period

Under both variable costing and absorption costing, variable and fixed selling and administrative costs are treated as _____ costs.

- require that the same method be used for both internal and external segment reporting -require segmented financial data be included in annual reports -create problems in reconciling internal and external reports

GAAP and IFRS rules _____.

- 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 the number of units produced equals the number of units sold, _____.

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?

- 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?

$155 $50 + $75 + $27 + ($30,000 / 10,000) = $155 per unit

Given the following information, calculate the unit product cost under absorption costing. Direct materials: $50/unit Direct labor: $75/unit Variable manufacturing overhead: $30,000 Units produced: 10,000 Units sold: 6,000

- holds managers responsible for costs they cannot control - distorts the profitability of segments - could reduce the overall profits of the company

Incorrectly or arbitrarily assigning common costs to segments ________.

- variable - absorption

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

$79398 $72,490 + ($22 x $314). Variable selling costs are incurred on units sold, not units produced.

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 _____

- fixed manufacturing overhead - direct materials - direct labor - variable manufacturing overhead

Product costs under absorption costing include _____.

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

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 _____.

$20376 849 x $24 = $20,376

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 $_____

Absorption costing

Manufacturing and selling and administrative - Absorption costing separates product (manufacturing) costs from period (selling and administrative costs).


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