Acc 225 ch 6

variable and fixed cost distinctions

Absorption costing income statements ignore ________. multiple choice 2 direct materials and direct labor costs direct and indirect cost distinctions product and period cost distinctions variable and fixed cost distinctions

is less than

When the units produced are equal to the units sold, the net operating income computed using the variable costing method is ______ the net operating income using the absorption costing method. multiple choice 1is greater thanis less thanis equal to

is greater than

When the units produced are less than the units sold, the net operating income computed using the variable costing method is ______ the net operating income using the absorption costing method. multiple choice 3 is less than is equal to is greater than

is less than

When the units produced exceed the units sold, the net operating income computed using the variable costing method is ______ the net operating income using the absorption costing method. multiple choice 2 is equal to is less than is greater than

Variable The variable costing method uses the contribution approach for preparing the income statement. The contribution approach income statement can be used for cost-volume-profit analysis because costs are separated as fixed and variable.

Which of the following costing approaches is best suited for cost-volume-profit analysis? multiple choice Absorption Normal Standard Variable

1.Direct labor Product cost 2.Fixed manufacturing overhead Period cost 3.Variable manufacturing overhead Product cost 4.Fixed selling and administrative expenses Period cost 5.Variable selling and administrative expenses Period cost

Decide how each cost is treated on an income statement prepared using the variable costing approach. Using the dropdown boxes, indicate whether each cost item is treated as a period cost or product cost. 1.Direct labor 2.Fixed manufacturing overhead 3.Variable manufacturing overhead 4.Fixed selling and administrative expenses 5.Variable selling and administrative expenses

$13,200

JanuaryBeginning inventory0Units produced500Units sold400Ending inventory100 Excerpt from Wallis Corporation Per UnitPer MonthSelling price$100 Direct materials 30 Direct labor 20 Variable manufacturing overhead 10 Variable selling and administrative expenses 7 Fixed manufacturing overhead $10,000Fixed selling and administrative expenses 3,000 What is the company's contribution margin for January? multiple choice $200 $13,200 $26,800 $40,000 (Variable cost per unit = (Direct materials cost of $30 per unit + Direct labor cost of $20 per unit + Variable manufacturing cost per unit of $10) + Variable selling and administrative expenses per unit of $7 = $67 Contribution margin = (Sales price of $100 − Variable cost per unit of $67) × Units sold of 400 = $33 × 400 = $13,200

$200,000 Contribution margin = Sales of $500,000 × 60% contribution margin = $300,000 Segment margin = Contribution margin of $300,000 - Traceable fixed expenses of $100,000 = $200,000

Max, Inc., has two divisions, South Division and North Division. South Division's sales, contribution margin ratio, and traceable fixed expenses are $500,000, 60%, and $100,000, respectively. What is the segment margin for the South Division? multiple choice 1 $100,000 $200,000 $300,000 $400,000

fixed overhead costs

The difference between absorption costing net operating income and variable costing net operating income can be explained by the way these two methods account for ________. multiple choice 1 all overhead costs fixed overhead costs selling and administrative expenses variable overhead costs

$600,000 Segment contribution margin ratio = $432,000 ÷ $720,000 = 60%Segment break-even point = Traceable fixed expenses of $360,000 ÷ Segment contribution margin ratio of 60% = $600,000

Total CompanyAmerican DivisionInternational DivisionSales$1,520,000 $720,000 $800,000Variable expenses 448,000 288,000 160,000Contribution margin 1,072,000 432,000 640,000Traceable fixed expenses 712,000 360,000 352,000Division segment margin 360,000 $72,000 $288,000Common fixed expenses 141,800 Net operating income$218,200 Knowledge Check 01 What is the break-even point for the American Division? multiple choice 1$360,000$440,000$600,000$1,210,549

less than absorption costing net operating income

When the number of units produced is greater than the number of units sold, variable costing net operating income will be ________. multiple choice 6 the same as absorption costing net operating income greater than absorption costing net operating income less than absorption costing net operating income

The segment margin is obtained by deducting the common fixed costs that have been allocated to a segment from that segment's contribution margin

Which of the following statements about the segment margin is not true? multiple choice In preparing a segmented income statement, the variable expenses are deducted from sales to yield the contribution margin for each segment. The segment margin is obtained by deducting the common fixed costs that have been allocated to a segment from that segment's contribution margin. The segment margin represents the margin available after a segment has covered all of its own costs. The segment margin is the best gauge of the long-run profitability of a segment because it includes only those costs that are caused by the segment.

$400,000 Traceable fixed costs of the mobile phone division = Total traceable fixed costs of $500,000 - Traceable fixed costs of the television division of $300,000 = $200,000.Mobile phone segment margin = Contribution margin of $600,000 - Traceable fixed costs of $200,000 = $400,000.

Bovine Corporation has two divisions: televisions and mobile phones. The mobile phone division has a contribution margin of $600,000. The company's common fixed costs and total traceable fixed costs are $100,000 and $500,000 respectively. Assuming the traceable fixed costs of the television division are $300,000, what is the segment margin of the mobile phone division? multiple choice 2 $100,000 $200,000 $300,000 $400,000

$440,000 Segment contribution margin ratio = $640,000 ÷ $800,000 = 80%Segment break-even point = Traceable fixed expenses of $352,000 ÷ Segment contribution margin ratio of 80% = $440,000

Total CompanyAmerican DivisionInternational DivisionSales$1,520,000 $720,000 $800,000Variable expenses 448,000 288,000 160,000Contribution margin 1,072,000 432,000 640,000Traceable fixed expenses 712,000 360,000 352,000Division segment margin 360,000 $72,000 $288,000Common fixed expenses 141,800 Net operating income$218,200 Knowledge Check 02 What is the break-even point for the International Division? multiple choice 2$352,000$440,000$600,000$1,210,549

$92,000

Excerpt from Areojet Corporation records for month of February: Per UnitPer MonthSelling price$200,000 Direct materials used in production 40,000 Direct labor 10,000 Variable manufacturing overhead 2,000 Fixed manufacturing overhead $120,000Variable selling and administrative expenses 20,000 Fixed selling and administrative expenses 40,000 FebruaryBeginning Inventory0Units Produced3Units Sold3Ending inventory0 Assuming the absorption costing method is used, what is the total manufacturing costs per unit added to work in process during the month of February? multiple choice $52,000 $92,000 $87,000 $122,000 (Total manufacturing costs added to work in process during the month of February = Direct materials used in production of $40,000 + Direct labor cost of $10,000 + Variable manufacturing overhead cost of $2,000 + Fixed manufacturing overhead cost of $40,000 = $92,000)

$52,000

Excerpt from Areojet Corporation records for month of February: Per UnitPer MonthSelling price$200,000 Direct materials used in production 40,000 Direct labor 10,000 Variable manufacturing overhead 2,000 Fixed manufacturing overhead $140,000Variable selling and administrative expenses 20,000 Fixed selling and administrative expenses 40,000 Assuming the variable costing method is used, what is the total manufacturing costs added to work in process during the month of February? $52,000 $80,000 $87,000 $122,000 (Total manufacturing costs added to work in process during the month of February = Direct materials used in production of $40,000 + Direct labor cost of $10,000 + Variable manufacturing overhead cost of $2,000 = $52,000)

$32,000 manufacturing overhead cost per unit = $10,000 fixed manufacturing overhead ÷ 500 units produced = $20Per unit product cost = $30 direct materials cost per unit + $20 direct labor cost per unit + $10 variable manufacturing cost per unit + $20 fixed manufacturing overhead cost per unit = $80 Cost of goods sold = 400 units sold × $80 per unit = $32,000

JanuaryBeginning inventory0Units produced500Units sold400Ending inventory100 Excerpt from Wallis Corporation Per UnitPer MonthSelling price$100 Direct materials 30 Direct labor 20 Variable manufacturing overhead 10 Variable selling and administrative expenses 7 Fixed manufacturing overhead $10,000Fixed selling and administrative expenses 3,000 What is the cost of goods sold for the month of January using the absorption costing method? multiple choice$24,000$30,000$32,000$40,000

$83,700 Eastern Division contribution margin ratio = $63,000 ÷ $900,000 = 70% Increase in Eastern Division contribution margin = Increase in sales of ($90,000 × Increase of 10%) × CM ratio of 70% Increase in Eastern Division contribution margin = $9,000 × 0.70 = $6,300 Because the fixed costs will not change, the entire $6,300 would result in increased net operating income for the company. Change in company's net operating income = Increase in Western Division CM of $6,300 − Decrease of Eastern Division segment margin of $90,000 = $(83,700)

Chao, Inc., a service provider, has two divisions. The firm's most recent annual contribution format segmented income statement appears below. Total CompanyEastern DivisionWestern DivisionSales$450,000 $90,000 $360,000Variable expenses 243,000 27,000 216,000Contribution margin 207,000 63,000 144,000Traceable fixed expenses 100,800 46,800 54,000Division segment margin 106,200 $16,200 $90,000Common fixed expenses 72,000 Net operating income$34,200 If the company eliminates the Western Division and the Eastern Division sales increase by 10% as a result, how much will the company's net operating income decrease?

They assign the costs of the corporate headquarters buildings to segments because the segments must cover those costs

Which of the following is a common mistake made by companies when assigning costs to segments? multiple choice They use allocation bases that drive the costs when assigning costs to segments. They trace fixed expenses to segments when it is feasible to do so. They assign the costs of the corporate headquarters buildings to segments because the segments must cover those costs. They include "upstream" and "downstream" costs when preparing profitability analyses that relate to individual product costs.