ACCT 201 B chp. 6 Connect Practice Problems

what 2 approaches may be used internally by manufacturing companies for costing products for the purposes of valuing inventory and cost of goods sold?

1. absorption costing 2. variable costing

absorption costing and variable costing net operating income will be: (2)

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

which of the following are advantages of using variable costing and the contribution approach for internal decision making? (3)

1. it is easy to explain changes in net income 2. it supports decision making 3. it enables CVP analysis

income statement (using absorption costing) (5) :

1. sales 2. (-) COGS 3. (=) gross margin 4. (-) total selling & admin costs 5. (=) net operating income

contribution format income statement (5) :

1. sales 2. variable costs 3. contribution margin 4. fixed costs 5. net operating income

selling and administrative expenses:

are always treated as period costs

when inventory increases, the higher net operating income that results from using absorption costing(rather than variable costing) occurs due to the fixed manufacturing overhead:

deferred in the inventory account on the balance sheet

variable costing treats __________ manufacturing costs as product costs.

only variable

variable costing treats fixed manufacturing overhead as a(n) _________ cost

period

decision-making problems that occur as a result of treating fixed overhead similarly to a variable cost when using absorption costing include inappropriate ________ decisions, and decisions made to _______ products that are, in fact, profitable.

pricing drop

a company's operations can be divided by product lines, geographical area, manufacturing plants, service centers or sales territories. The term used to describe these divisions is _________.

segments

when constructing segmented reports:

some costs are not traceable to particular segments

when computing a segment margin, only ________ fixed costs are charged to the particular segment.

traceable

under absorption costing, fixed manufacturing overhead costs flow to income statement when:

units are sold

if a segment is eliminated, ________ fixed costs that are not traced to the segment will not change

common

absorption costing =

manufacturing (product costs) & selling and administrative (period costs)

in periods in which inventory decreases, cost of goods sold under absorption costing will be ______ cost of goods sold under variable costing.

more than

segment break-even calculations include:

only traceable fixed expenses

which of the following statements is correct regarding segmented reporting?

traceable fixed costs are charged to segments, but common fixed costs are not

when a segment is eliminated, a: (2)

1. traceable fixed cost will disappear 2. common fixed cost will remain unchanged

______ costing separates costs between variable and fixed, whereas ________ costing separates costs b/w product and period

1. variable 2. absorption

when preparing a contribution margin income statement: (2)

1. variable and fixed costs are listed in separate sections of the statement 2. cost of goods sold consists of only variable manufacturing costs

when should a segment be discontinued: (2)

1. when the segment contribution margin doesn't cover the traceable fixed costs 2. when the segment margin is negative

when there is no change in inventory, net operating income will be:

exactly the same under both absorption costing and variable costing

how is the contribution format used in segment reporting different from a contribution income statement for the company as a whole?

fixed costs are divided into traceable and common costs, so that managers are only held accountable for the traceable costs of their segments

when allocating fixed manufacturing overhead costs to units under absorption costing, the total fixed overhead costs must be divided by the number of units __________

produced

which of the following is an example of a traceable fixed cost for General Motors' Corvette Division?

the depreciation cost on the equipment used to manufacture the Corvettes

the number of units produced does not affect net operating income when using _______ costing

variable

variable costing =

variable & fixed

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

variable costing

fixed manufacturing overhead is treated as a period cost and expensed in full each period

absorption costing

fixed manufacturing overhead is treated as part of the per unit product cost and expensed as units are sold