BU231 Chapter 6 Quiz

Yuvil Corporation produces a single product. At the end of the company's first year of operations, 1,000 units of inventory remained on hand. Its variable manufacturing overhead cost is $45 per unit and its fixed manufacturing overhead cost is $10 per unit. Yuvil's absorption costing net operating income would be higher than its variable costing net operating income by:

$10,000

Brummitt Corporation has two divisions: the BAJ Division and the CBB Division. The corporation's net operating income is $10,700. The BAJ Division's divisional segment margin is $76,100 and the CBB Division's divisional segment margin is $42,300. What is the amount of the common fixed expense not traceable to the individual divisions?

$107,700

When using data from a segmented income statement, the dollar sales for the company to break even overall is equal to:

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

Common fixed costs should not be charged to the individual segments when preparing a segmented income statement.

true

Sorto Corporation has two divisions: the East Division and the West Division. The corporation's net operating income is $93,200. The East Division's divisional segment margin is $223,200 and the West Division's divisional segment margin is $15,900. What is the amount of the common fixed expense not traceable to the individual divisions?

$145,900

Channing Corporation has two divisions, C and D. The overall company contribution margin ratio is 30%, with sales in the two divisions totaling $750,000. If variable expenses are $450,000 in Division C and if Division C's contribution margin ratio is 25%, then sales in Division D must be:

$150,000

DC Construction has two divisions: Remodeling and New Home Construction. Each division has an on-site supervisor who is paid a salary of $62,000 annually and one salaried estimator who is paid $36,000 annually. The corporate office has two office administrative assistants who are paid salaries of $40,000 and $32,000 annually. The president's salary is $138,000. How much of these salaries are common fixed expenses?

$210,000

Quinnett Corporation has two divisions: the Export Products Division and the Business Products Division. The Export Products Division's divisional segment margin is $34,300 and the Business Products Division's divisional segment margin is $86,700. The total amount of common fixed expenses not traceable to the individual divisions is $95,600. What is the company's net operating income?

$25,400

Insider Corporation has two divisions, J and K. During March, the contribution margin in Division J was $30,000. The contribution margin ratio in Division K was 40%, its sales were $125,000, and its segment margin was $32,000. The common fixed expenses in the company were $40,000, and the company's net operating income was $18,000. The segment margin for Division J was:

$26,000

Gunderman Corporation has two divisions: the Alpha Division and the Charlie Division. The Alpha Division has sales of $230,000, variable expenses of $131,100, and traceable fixed expenses of $63,300. The Charlie Division has sales of $540,000, variable expenses of $307,800, and traceable fixed expenses of $120,700. The total amount of common fixed expenses not traceable to the individual divisions is $119,200. What is the company's net operating income?

$27,900

Sturr Market has 3 stores: P, Q, and R. During October, Store P had a contribution margin of $24,000 and a contribution margin ratio of 30%. Store Q had variable expenses of $48,000 and a contribution margin ratio of 40%. Store R had variable expenses of $84,000 and a variable expense ratio of 70% of sales. Sturr Market's total sales were:

$280,000

A company produces a single product. Variable production costs are $12 per unit and variable selling and administrative expenses are $3 per unit. Fixed manufacturing overhead totals $36,000 and fixed selling and administration expenses total $40,000. Assuming a beginning inventory of zero, production of 4,000 units and sales of 3,600 units, the dollar value of the ending inventory under variable costing would be:

$4,800

Koen Corporation has two divisions: Division A and Division B. Last month, the company reported a contribution margin of $50,000 for Division A. Division B had a contribution margin ratio of 30% and its sales were $250,000. Net operating income for the company was $30,000 and traceable fixed expenses were $50,000. Koen Corporation's common fixed expenses were:

$45,000

Swifton Corporation produces a single product. Last year, the company had net operating income of $40,000 using variable costing. Beginning and ending inventories were 22,000 and 27,000 units, respectively. If the fixed manufacturing overhead cost was $3 per unit both last year and this year, what was the income using absorption costing?

$55,000

Last year, Walters Corporation's variable costing net operating income was $60,800 and its inventory decreased by 200 units. Fixed manufacturing overhead cost was $3 per unit for both units in beginning and in ending inventory. What was the absorption costing net operating income last year?

$60,200

Sechrest Corporation manufactures a single product. Last year, the company's variable costing net operating income was $80,500. Fixed manufacturing overhead costs released from inventory under absorption costing amounted to $18,400. What was the absorption costing net operating income last year?

$62,100

Rede Inc. manufactures a single product. Variable costing net operating income was $63,800 last year and its inventory decreased by 300 units. Fixed manufacturing overhead cost was $4 per unit for both units in beginning and in ending inventory. What was the absorption costing net operating income last year?

$62,600

Last year, Rassel Corporation's variable costing net operating income was $63,200. Fixed manufacturing overhead costs deferred in inventory under absorption costing amounted to $31,900. What was the absorption costing net operating income last year?

$95,100

The term gross margin is used in reports prepared using:

absorption costing but not variable costing

Under absorption costing, fixed manufacturing overhead costs:

are deferred in inventory when production exceeds sales

George Corporation has no beginning inventory and manufactures a single product. If the number of units produced exceeds the number of units sold, then net operating income under the absorption method for the year will:

be greater than the net operating income under variable costing

Under variable costing, fixed manufacturing overhead is:

expensed as a period cost

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

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

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

When production exceeds sales and the company uses the LIFO inventory flow assumption, the net operating income reported under absorption costing generally will be:

greater than net operating income reported under variable costing

A company that produces a single product had a net operating income of $75,000 using variable costing and a net operating income of $95,000 using absorption costing. Total fixed manufacturing overhead was $50,000 and production was 10,000 units both this year and last year. Last year was the first year of operations. Between the beginning and the end of the year, the inventory level:

increased by 4,000 units

If a cost is a common cost of the segments on a segmented income statement, the cost should:

not be allocated to the segments

A national retail company has segmented its income statement by sales territories. If each sales territory statement is further segmented by individual stores, which of the following will most likely occur?

some traceable fixed expenses in the sales territory segmented statement will become common fixed expenses in the individual store segmented statement.

When sales are constant, but the number of units produced fluctuates, net operating income determined by the absorption costing method will:

tend to fluctuate in the same direction as fluctuations in the number of units produced

Managers will often allocate common fixed expenses to business segments because:

they believe this practice will ensure that the company's common fixed expenses are covered

When using data from a segmented income statement, the dollar sales for a segment to break even is equal to:

traceable fixed expenses / segment CM ratio

Assuming the LIFO inventory flow assumption, if production equals sales for the period, absorption costing and variable costing will produce the same net operating income.

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, fixed manufacturing overhead is treated as a product cost.

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

Under variable costing, which of the following is not expensed in its entirety in the period in which it is incurred?

variable manufacturing overhead cost

The principal difference between variable costing and absorption costing centers on:

whether fixed manufacturing costs should be included in product costs