Accounting 204-Chapter #5

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 traceable fixed cost ______.

is incurred because of the existence of the segment

When using absorption costing, fixed manufacturing overhead cost per unit = Total fixed manufacturing overhead cost divided by units:

produced

Assigning common fixed costs to segments impacts ______.

segment margin only

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

the segment's traceable fixed costs the segment's contribution margin

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

higher than

When using variable costing, fixed manufacturing overhead is:

expensed in the period incurred

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

variable costing

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. If 1,490 bottles are produced and 1,203 are sold in July, total selling and administrative expense for the month will be ______. Multiple choice question.

($1.05 x 1,203) + $4,500 = $5,763.15

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 $

(19+40+9)=68

Given the following information, calculate the unit product cost under absorption costing.Direct materials: $50/unitDirect labor: $75/unitVariable manufacturing overhead: $27/unitFixed manufacturing overhead: $30,000Units produced: 10,000Units sold: 6,000

(50 + 75 + 27 + (30000/10000)=155

For external reporting, income statements are generally prepared using _____ costing, while _____ costing is used for internal decision making purposes.

-Variable -Absorption

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 $

842*112=94,304

Under absorption costing product costs consist of______.

Both variable and fixed manufacturing

Why is CVP analysis more difficult when using absorption costing than when using variable costing?

CVP analysis requires costs to be broken down between variable and fixed which is not done in absorption costing.

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

Computing contribution margin instead of gross margin.

Variable costing income statements are based upon a _____ format.

Contribution

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 or False

True

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

absorption costing

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

be dropped

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

decreases

Absorption costing net income is calculated by subtracting selling and administrative expenses from

gross margin

An absorption costing income statement calculates

gross margin by deducting cost of goods sold from sales

When inventory decreases, cost of goods sold under absorption costing will generally be ______ cost of goods sold under variable costing.

more than

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

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

higher than