P2 Chapter 6
Assuming the LIFO inventory flow assumption, if production is less than sales for the period, absorption costing net operating income will generally be greater than variable costing net operating income.
FALSE
Because absorption costing emphasizes costs by behavior, it works well with cost-volume-profit analysis.
FALSE
Common fixed expenses should be allocated to business segments when performing break-even calculations and making decisions.
FALSE
Direct materials is considered to be a product cost under variable costing but not absorption costing.
FALSE
If a cost must be arbitrarily allocated in order to be assigned to a particular segment, then that cost should not be considered a common cost.
FALSE
Under absorption costing, fixed manufacturing overhead cost is not included in product cost.
FALSE
Under conventional absorption costing, the fixed costs associated with idle production capacity are not included as part of the product cost.
FALSE
Under variable costing, variable production costs are not treated as product costs.
FALSE
When the number of units in work in process and finished goods inventories decrease, absorption costing net operating income will typically be greater than variable costing net operating income.
FALSE
When using segmented income statements, the dollar sales for a segment to break even equals the common fixed expenses of the segment divided by the segment CM ratio.
FALSE
When viewed over the long term, cumulative net operating income will be the same for variable and absorption costing if ending inventories exceed beginning inventories.
FALSE
term: represents margin available after a segment has covered all of its own costs
segment margin
term: costing method that includes only variable mfg. costs in unit product costs
variable costing
term: fixed MOH treated as period cost, reported as expense on income statement
variable costing
formula: MOH deferred in (released from) inventory
fixed MOH in EI - Fixed MOH in BI
formula: dollar sales for segment to BE
(segment traceable FE) / segment CM ratio
formula: dollar sales for company to BE
(traceable FE + common FE) / overall CM ratio
A common fixed cost is a fixed cost that supports more than one business segment and is traceable in whole or in part to at least one of the business segments.
FALSE
A common fixed cost is a fixed cost that is incurred because of the existence of a particular business segment and that would be eliminated if the segment were eliminated.
FALSE
Common fixed costs should not be charged to the individual segments when preparing a segmented income statement.
TRUE
If a company operates at the break even point for each of its segments, it will lose money overall if common fixed expenses exist.
TRUE
Net operating income is affected by the number of units produced when absorption costing is used.
TRUE
Segment margin is a better measure of the long-run profitability of a segment than contribution margin.
TRUE
The costs assigned to units in inventory are typically lower under variable costing than under absorption costing.
TRUE
Under absorption costing, it is possible to defer a portion of the fixed manufacturing overhead costs of the current period to future periods through the inventory account.
TRUE
Under absorption costing, the profit for a period is affected by a change in the number of units of finished goods in inventory.
TRUE
Under variable costing, fixed manufacturing overhead cost is not treated as a product cost.
TRUE
Under variable costing, product cost does not contain any fixed manufacturing overhead cost.
TRUE
Under variable costing, product costs consist of direct materials, direct labor, and variable manufacturing overhead.
TRUE
When using segmented income statements, the dollar sales for a company to break even equals the sum of the traceable fixed expenses and the common fixed expenses divided by the overall CM ratio.
TRUE
When variable costing is used, and if selling prices exceed variable expenses and if the unit contribution margins, the sales mix, and fixed costs remain the same, profits move in the same direction as sales.
TRUE
term: allocates a portion of fixed MOH cost to each unit of a product, w/ variable mfg. costs
absorption costing
term: costing method that includes all mfg. costs in unit product costs
absorption costing
term: fixed cost that supports more than one business segment, but is not traceable in whole or in part to any one of the business segments
common fixed cost
term: fixed cost incurred because of the existence of a particular business segment and that would be eliminated if the segment were eliminated
traceable fixed costs
Under absorption costing, fixed manufacturing overhead is treated as a product cost
true