Managerial accounting chapter 6 LS

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 $__________

Variable Costing unit product cost = Direct Materials + Direct Labor + Variable Manufacturing overhead = $19 + $40 + $9 =$68

Because nonmanufacturing costs are not included as costs of a product, the use of _________ , Correct Unavailable costing can lead to the omission of segment costs.

absorption

Under absorption costing product costs consist of ______ costs.

both variable and fixed manufacturing

When units produced exceed units sold, net income will generally be ______ costing.

higher under absorption costing than under variable

Absorption costing can lead managers to mistakenly believe that fixed manufacturing overhead costs will ______ in total as the number of units produced increases.

increase

A traceable fixed cost ______.

is incurred because of the existence of the segment

When units sold exceed units produced, net income under variable costing will generally be ______ net income under absorption costing.

lower than

Dollar break-even for a company is calculated as ______.

(Traceable fixed expenses + Common fixed expenses) ÷ Overall CM ratio

Which of the following statements are correct regarding income statements prepared under variable and absorption costing?

1. Reported net income on the statements often differ. 2. Both income statements include product and period costs.

Which of the following statements are correct?

1. Variable costing emphasizes the impact of fixed costs on profit. 2. Absorption costing makes fixed costs appear to be variable.

when the number of units produced equals the number of units sold, ______.

1. absorption costing net income is equal to variable costing net income 2. all fixed overhead incurred flows to the income statement under both costing methods

On an absorption costing income statement, selling and administrative expenses ______.

1. are reported as a single amount 2. equal the amounts reported on a variable costing income statement

A segment should probably be dropped when the segment ______.

1. cannot cover its own costs 2. has a contribution margin that cannot cover traceable fixed costs

When preparing a segment margin income statement ______.

1. cost of goods sold consists of only variable manufacturing costs 2. traceable fixed expenses are deducted from contribution margin

Common mistakes made by companies when assigning costs to segments include ______.

1. omitting costs that should be included 2. arbitrarily allocating common fixed costs 3. inappropriately assigning traceable fixed costs

Absorption costing and variable costing net operating income will be equal when ______.

1. the number of units produced equals the number of units sold 2. there is no beginning and no ending inventory

When calculating the profit impact of discontinuing a segment, consider ______.

1. the segment's contribution margin 2. the segment's traceable fixed costs

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

1. under-costing of segments 2. omission of upstream and downstream costs

Financial statement users need to be aware of changes in inventory levels when using ______ costing.

absorption

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

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

decreases

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\

An example of a traceable fixed cost for General Motors' Corvette Division is the ______.

depreciation on equipment used to manufacture Corvettes

Absorption and variable costing net income are usually different due to the accounting for ______.

fixed manufacturing overhead

Under variable costing the cost of a unit of inventory does not contain ______.

fixed manufacturing overhead

The difference between reported net income on variable costing and absorption costing income statements is based on how ______.

fixed overhead is accounted for

An absorption costing income statement calculates ______.

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 ______.

has an overall net operating loss of $10,000

The company-wide break-even sales will always be ______ the sum of the segment break-even sales.

higher than

The segment margin represents the ______.

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

Segmented income statements ______.

may be prepared for activities at many levels in a company

If a segment is entirely eliminated, common fixed costs will ______.

not change

Segment break-even calculations include ______ fixed expenses.

only traceable

Variable costing treats ______ manufacturing costs as product costs.

only variable

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

period

When a segment cannot cover its own costs, that segment should ______.

probably dropped

Absorption costing treats fixed manufacturing overhead as a ______ cost.

product

The segment margin is the best gauge for assessing the long-run ______ of a segment.

profitability

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

segment

Assigning common fixed costs to segments impacts ______.

segment margin only

Selling and administrative expenses are ______ on both the absorption and variable costing income statements.

the same amount

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

The variable costing income statement separates ______.

variable and fixed expenses

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 Reason: $76.35 × 155 = $11,834.25

Net operating income under absorption costing is generally ______ net operating income under variable costing in periods in which inventory increases.

higher than

The difference in net operating income between absorption costing and variable costing is due to the ______.

time when fixed overhead is expensed

Only costs that would disappear over time if a segment disappeared should be treated as ________ fixed costs.

traceable

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.

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

Selling and administrative expenses ______.

are always treated as period costs

Costs that can be traced directly to a segment ______.

should not be allocated to other segments

Variable costing income statements are based upon a ______ format.

contribution

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 ______.

$101,000 ($42,000 fixed MOH) + ($59,000 Fixed selling and administrative expenses)

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

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

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 Reason: $70,000 ÷ 40% = $175,000

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 $

$416000

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 ______.

$47 $22 ( Direct materials ) + $18 ( Direct Labor ) + $7 (Variable MOH)

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. The company produced 1,490 bottles this month, and sold 1,203 of those bottles. Total selling and administrative expense for the month was ______.

$5,763.15 ($1.05 x 1203) + $4500 =$5,763.15

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 ______.

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

Fixed manufacturing overhead costs are included as part of Work in Process inventory under ______.

Absorption Costing

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

Absorption, Variable

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 $

COGS = Amount of goods sold x product cost 842 x 112 = $ 94,304

Which of the following is NOT a common mistake made in preparing segmented income statements?

Computing contribution margin instead of gross margin.

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. t/f

False

Which of the following statement is correct?

Internal income statements are generally prepared using variable costing and external income statements are generally prepared using absorption 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 ______ for the individual product lines made in the plant.

traceable fixed cost to the plant and a common fixed cost

Segment margin is obtained by deducting each segment's ______.

traceable fixed costs from its contribution margin

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

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.

true

The number of units produced does not affect net operating income when using ______ costing.

variable

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 Blank______.

$119 $45 + $37 + $8 + ($58,000 ÷ 2,000) = $119

Variable costing net income may be computed by multiplying the number of units sold by the _______ _______ per unit and subtracting total _______ expenses.

Contribution Margin, Fixed

Variable costing net income may be computed by multiplying the number of units sold by the _________ __________ per unit and subtracting total ________ expenses.

Contribution Margin, Fixed