Ch 7 Smart Book - Acct 201B

When inventory increases, which costing method generally results in higher net income? The two costing methods would show the same net income Variable costing Absorption costing

Absorption costing

The unit product cost of a blender is $24. If 900 blenders are produced and 849 blenders are sold, the total cost of goods sold is $ _________________

Blank 1: 20,376 or 20376

If a segment is eliminated, ____________ fixed costs that are not traced to the segment will not change.

common

When using absorption costing, fixed manufacturing overhead cost per unit = Total fixed manufacturing overhead divided by units ______. sold produced (produced - units sold) in ending inventory

produced

When allocating fixed manufacturing overhead cost to units under absorption costing, the total fixed overhead costs must be divided by the number of units ___________.

produced, manufactured, made, or completed

The segment margin is a valuable tool for assessing the long-run ______ of a segment. return on investment profitability revenue potential adaptability

profitability

U.S. GAAP and IFRS ______ publicly traded companies include segmented financial data prepared for external users that use the same methods used in internal segment reports. do not recommend require recommend

require

Select all that apply Absorption costing is ______. rarely used the preferred method for internal decision making required by GAAP and IFRS used by most companies for both internal and external reports

required by GAAP and IFRS used by most companies for both internal and external reports

Assigning common fixed costs to segments impacts ______. total corporate profit only segment margin only neither segment margin nor total corporate profit both segment margin and total corporate profit

segment margin only

Segment contribution margin equals segment revenue minus the ________________ expenses for the segment.

variable

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

variable

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

variable

Fixed manufacturing overhead costs are included as part of Work in Process inventory under ______. both variable and absorption costing variable costing only absorption costing only neither variable and absorption costing

absorption costing only

Fixed manufacturing overhead costs are included as part of Work in Process inventory under ______. variable costing only both variable and absorption costing absorption costing only neither variable and absorption costing

absorption costing only

Select all that apply Incorrectly or arbitrarily assigning common costs to segments ______. could reduce the overall profits of the company distorts the profitability of segments ensures all common costs will be covered holds managers responsible for costs they cannot control causes company net income to be reported incorrectly

could reduce the overall profits of the company distorts the profitability of segments holds managers responsible for costs they cannot control

The variable costing income statement separates ______. product and period costs variable and fixed expenses selling and administrative expenses direct and indirect expenses

variable and fixed expenses

Absorption costing treats fixed manufacturing overhead as a ______ cost. period product

product

Granny's Touch manufactures and sells cookbooks. The company's variable cost of goods sold is $39,200 and variable selling and administrative expense is $6,200. Fixed manufacturing overhead is $19,700 and fixed selling and administrative expense is $9,290. An income statement prepared using variable costing shows $ ______________ as the total fixed expenses.

Blank 1: 28,990 or 28990

Pearls, Pearls, Pearls! manufactures and sells jewelry. The total variable cost of goods sold this month is $72,490. Variable selling and administrative cost is $22 per unit sold. If 350 units are produced and 314 units are sold this month, the total variable cost reported on the income statement for the month is $ ______________

Blank 1: 79,398 or 79398

Variable costing

Categorized by behavior

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 False

True

Select all that apply Discontinuing a profitable segment results in ______. a reduction in the overall profits of the company reduced common fixed costs for the company the loss of the segment's revenues

a reduction in the overall profits of the company the loss of the segment's revenues

Under absorption costing product costs consist of ______ costs. only fixed manufacturing both variable and fixed manufacturing only variable manufacturing all manufacturing and selling and administrative

both variable and fixed manufacturing

Select all that apply When preparing a segment margin income statement ______. cost of goods sold consists of only variable manufacturing costs common fixed expenses are excluded from the statement traceable fixed expenses are deducted from contribution margin fixed manufacturing costs are included in cost of goods sold

cost of goods sold consists of only variable manufacturing costs traceable fixed expenses are deducted from contribution margin

An example of a traceable fixed cost for General Motors' Corvette Division is the ______. depreciation cost on the equipment used to manufacture the Corvettes utilities cost of the General Motors corporate headquarters direct materials used in the production of the Corvettes salary of the General Motors Chief Executive Officer

depreciation cost on the equipment used to manufacture the Corvettes

Absorption and variable costing net income are usually different due to the accounting for ______. fixed manufacturing overhead all product costs all manufacturing overhead selling and administrative costs variable manufacturing overhead

fixed manufacturing overhead

Select all that apply A variable costing income statement ______. is constructed exactly like an absorption costing income statement focuses on fixed and variable expenses, while an absorption costing income statement focuses on period and product costs does not include fixed manufacturing overhead, which is included on an absorption costing income statement calculates contribution margin while the absorption costing income statement calculates gross margin

focuses on fixed and variable expenses, while an absorption costing income statement focuses on period and product costs calculates contribution margin while the absorption costing income statement calculates gross margin

A traceable fixed cost ______. will continue if the segment is discontinued varies with the activity level in a particular segment supports the operations of more than one segment is incurred because of the existence of the segment

is incurred because of the existence of the segment

Select all that apply Using absorption costing for segmented income statements can lead to ______. omission of upstream and downstream costs under-costing of segments inconsistencies between internal and external reports the need to maintain two costing systems

omission of upstream and downstream costs under-costing of segments

Select all that apply When calculating the profit impact of discontinuing a segment, consider _____. the segment's traceable fixed costs common costs allocated to the segment the segment's contribution margin

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

SPS Products has two divisions—Catalog Sales and Online Sales. For the last quarter the Catalog Sales segment margin was ($5,000). Online sales were $100,000. Online Sales contribution margin was $60,000, and its segment margin was $40,000. If Catalog Sales are discontinued, it is estimated that online sales will increase by 10%. Discontinuing Catalog Sales should increase company profits by ______. $6,000 $9,000 $11,000 $5,000

$11,000 Reason: Increased online sales contribution margin ($100,000 × 10% ×$60,000 ÷ $100,000) is $6,000 + $5,000 saved from stopping catalog sales = $11,000.

Bart's Inc. operates retail stores in various cities. Segmented income statements are prepared for each store and for each product line in each store. The property tax for the store is a(n) ________________ fixed cost for the store, and a(n) ________________ fixed cost for each product line sold in the store.

Blank 1: traceable, traced, or direct Blank 2: common

Advocates of ___________________ costing believe fixed costs are an essential part of product production.

Blank 1: absorption or full

Because nonmanufacturing costs are not included as costs of a product, the use of _______________ costing can lead to the omission of segment costs.

Blank 1: absorption or full

If a segment is entirely eliminated, common fixed costs will ______. decrease be eliminated not change

not change

In order to comply with GAAP and IFRS, the ______ costing method must be used for external reporting in the United States. variable segmented absorption

absorption

Blink sells and manufactures frames for eyeglasses. The unit product cost for frame #47320 is $76.35. Last period, Blink produced 200 frames and sold 155 of them. Total cost of goods sold equals ______. $3,435.75 $11,834.25 $15,270.00 $231.35

$11,834.25 Reason: $76.35 × 155 = $11,834.25

JPL Company has two segments - Retail and Commercial. The Retail segment has a contribution margin ratio of 40% and traceable fixed expenses of $70,000. Commercial has traceable fixed expenses of $50,000 and a contribution margin ratio of 55%. The company also has $30,000 of common fixed expenses. The break-even point in dollar sales for the Retail segment equals ______. $250,000 $212,500 $175,000 $116,667

$175,000 Reason: $70,000 ÷ 40% = $175,000

Citrus Scents produces body sprays. Each bottle has a unit product cost of $5.38. The company produced 1,490 bottles this month and sold 1,203 of those bottles. Total cost of goods sold was ______. $6,472.14 $1,544.06 $8,016.20

$6,472.14 Reason: $5.38 × 1,203 = $6,472.14

Frames, Inc. manufactures large wooden picture frames. Each frame requires $19 of direct materials and $40 of direct labor. Variable manufacturing overhead cost is $9 per frame produced, and variable selling and administrative expense is $13 per frame sold. The company produces 5,000 units each month and total fixed manufacturing overhead cost per month is $15,000. The unit product cost of each frame using variable costing is $ _______________.

68 $68 Variable Costing Unit Product Cost=Direct materials + Direct Labor + Variable Manufacturing overhead= $19+$40+$9= $68

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 $ _________________.

Blank 1: 94,304 or 94304

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

Blank 1: absorption or full

Managers who believe that all manufacturing costs must be assigned to products in order to properly match the cost of production with sales are advocates of _______________ costing.

Blank 1: absorption or full

The two general costing approaches used by manufacturing companies to prepare income statements are __________________ costing and _________ costing.

Blank 1: absorption or full Blank 2: variable , marginal, or direct

When allocating fixed manufacturing overhead cost to units under absorption costing, the total fixed overhead costs must be divided by the number of units ____________________.

Blank 1: produced, manufactured, made, or completed

Absorption costing

Categorized by function

Variable costing income statements are based upon a ______ format. traditional product vs. period costs contribution margin

contribution margin

Select all that apply Using variable costing and the contribution approach for internal decision making ______. enables CVP analysis is required as part of GAAP financial statements supports decision making facilitates explaining changes in net income

enables CVP analysis supports decision making facilitates explaining changes in net income

Under variable costing the cost of a unit of inventory does not contain ______. direct labor direct materials variable manufacturing overhead fixed manufacturing overhead

fixed manufacturing overhead

Select all that apply Common mistakes made by companies when assigning costs to segments include ______. inappropriately allocating variable costs omitting costs that should be included inappropriately assigning traceable fixed costs arbitrarily allocating common fixed costs

omitting costs that should be included inappropriately assigning traceable fixed costs arbitrarily allocating common fixed costs

Segment break-even calculations include ______ fixed expenses. only traceable only common both traceable and common

only traceable

Only costs that would disappear over time if a segment disappeared should be treated as _____________ fixed costs.

traceable

Select all that apply When preparing a segment margin income statement ______. fixed manufacturing costs are included in cost of goods sold common fixed expenses are excluded from the statement traceable fixed expenses are deducted from contribution margin cost of goods sold consists of only variable manufacturing costs

traceable fixed expenses are deducted from contribution margin cost of goods sold consists of only variable manufacturing costs

SPS Products has two divisions—Catalog Sales and Online Sales. For the last quarter the Catalog Sales segment margin was ($5,000). Online sales were $100,000. Online Sales contribution margin was $60,000, and its segment margin was $40,000. If Catalog Sales are discontinued, it is estimated that online sales will increase by 10%. Discontinuing Catalog Sales should increase company profits by ______. $5,000 $9,000 $11,000 $6,000

$11,000 Reason: Increased online sales contribution margin ($100,000 × 10% ×$60,000 ÷ $100,000) is $6,000 + $5,000 saved from stopping catalog sales = $11,000.

Comfy Cozy Chairs makes and sells rockers. Each rocker requires $45 of direct materials and $37 of direct labor. Variable manufacturing overhead is $8 per unit, and fixed manufacturing overhead totals $58,000. Variable selling and administrative costs are $15 per unit, and fixed selling and administrative costs total $102,000. During the period, 2,000 rockers were produced and 1,640 were sold. The unit product cost using absorption costing is ______. $90 $105 $125 $119

$119 Reason: $45 + $37 + $8 + ($58,000 ÷ 2,000) = $119

Given the following information, calculate the unit product cost under absorption costing. Direct materials: $50/unit; Direct labor: $75/unit; Variable manufacturing overhead: $27/unit; Fixed manufacturing overhead: $30,000; Units produced: 10,000; Units sold: 6,000. $155 $157 $128 $152

$155 Reason: $50 + $75 + $27 + ($30,000 ÷ 10,000) = $155 per unit

Put'er There manufactures baseball gloves. Each glove requires $22 of direct materials and $18 of direct labor. Variable manufacturing overhead cost is $7 per unit and fixed manufacturing overhead cost is $19,000 in total. Variable selling and administrative costs are $11 per unit sold and fixed selling and administrative costs are $13,200. Last period, 800 gloves were produced, and 585 gloves were sold. The unit product cost using variable costing is ______ per unit. $70.75 $58 $47 $81.75

$47 Unit product cost = $22 + $18 + $7 = $47. Selling and administrative costs are never considered part of product cost.

Which of the following is NOT a common mistake made in preparing segmented income statements? Arbitrarily dividing common costs among segments. Omitting costs that should be included. Computing contribution margin instead of gross margin. Using inappropriate allocations bases.

Computing contribution margin instead of gross margin.

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 False

True Reason: All traceable costs should be assigned to segments when possible.

Absorption costing can lead managers to mistakenly believe that fixed manufacturing overhead costs will ______ in total as the number of units produced increases. increase decrease remain the same

increase Reason: When fixed costs are put on a per unit basis, it appears that the total cost will increase as the number of units increase.

Why is CVP analysis more difficult when using absorption costing than when using variable costing? Fixed manufacturing overhead is ignored when performing CVP analysis. CVP analysis requires costs to be broken down between variable and fixed which is not done in absorption costing. CVP analysis requires costs to be broken down into product and period costs, which is not done in absorption costing. Selling and administrative costs are ignored when performing CVP analysis.

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

Select all that apply Which of the following statements are correct regarding income statements prepared under variable and absorption costing? Reported net income on the statements often differ. Both income statements include product and period costs. Absorption costing categorizes costs based on cost behavior. The difference between the statements is how total manufacturing overhead is accounted for.

Reported net income on the statements often differ. Both income statements include product and period costs.

Absorption and variable costing net income are usually different due to the accounting for ______. variable manufacturing overhead fixed manufacturing overhead all product costs all manufacturing overhead selling and administrative costs

fixed manufacturing overhead

Net operating income under absorption costing is generally ______ net operating income under variable costing in periods in which inventory increases. equal to higher than less than

higher than

Decision-making problems that could occur when using absorption costing include inappropriate ______ decisions, and decisions made to ______ products that are, in fact, profitable. production; focus upon reporting; add strategy; produce pricing; drop

pricing; drop

Select all that apply GAAP and IFRS rules ______. require that the same method be used for both internal and external segment reporting create incentives for companies to use the contribution margin format in segment reporting create problems in reconciling internal and external reports require segmented financial data be included in annual reports

require that the same method be used for both internal and external segment reporting create problems in reconciling internal and external reports require segmented financial data be included in annual reports

The Quaint Quilt produces and sells handmade quilts. Variable manufacturing costs total $140 per quilt. Fixed manufacturing overhead totals $68,250 per quarter. Variable selling and administrative costs are $19 per quilt sold, and fixed selling and administrative costs are $50,000 per quarter. Last quarter, the company produced 910 quilts and sold 780 quilts. The total variable cost reported on Quaint Quilt's variable costing income statement is ______. $109,200 $124,020 $144,690 $167,700

$124,020 ($140 + $19) x 780 quilts sold = $124,020

The segment margin represents the ______. excess of the segment revenue over the segment cost of goods sold margin remaining after traceable and common fixed costs have been deducted margin available after a segment has covered all of its own costs margin available to cover fixed costs

margin available after a segment has covered all of its own costs

Variable costing treats fixed manufacturing overhead as a(n) __________________ cost.

Blank 1: period

Costs are separated between variable and fixed expenses when using ______ costing, whereas ______ costing separates costs between product and period. absorption, variable variable, absorption

variable, absorption

Arbot Co. manufactures appliances at three manufacturing facilities in the United States. Each location has a plant manager who oversees the manufacturing process for that location. Segmented income statements are prepared for each plant and for each product manufactured in the plant. The salary of each plant manager is a ______ for the individual product lines made in the plant. traceable fixed cost to the plant and a common fixed cost traceable fixed cost for both the plant and common fixed cost for the plant and a traceable fixed cost common fixed cost for both the plant and

traceable fixed cost to the plant and a common fixed cost

Sleep Tight manufactures pillows. The company incurred $42,000 of fixed manufacturing overhead cost this year. Variable unit product cost was $17. Variable selling and administrative cost was $9 per unit and fixed selling and administrative expenses totaled $59,000. The company manufactured 28,000 pillows and sold 15,408. Total fixed expenses on the variable costing contribution format income statement equal ______. $59,000 $708,768 $671,096 $101,000

$101,000 Reason: $42,000 + $59,000 = $101,000

Select all that apply Common mistakes made by companies when assigning costs to segments include ______. inappropriately allocating variable costs inappropriately assigning traceable fixed costs omitting costs that should be included arbitrarily allocating common fixed costs

inappropriately assigning traceable fixed costs omitting costs that should be included arbitrarily allocating common fixed costs

Costs that can be traced directly to a segment ______. may be treated as common costs should be allocated to all segments should not be allocated to other segments

should not be allocated to other segments

Select all that apply When calculating the profit impact of discontinuing a segment, consider _____. the segment's traceable fixed costs the segment's contribution margin common costs allocated to the segment

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

One mistake companies make when preparing segmented income statements is arbitrarily assigning __________ fixed costs to segments.

Blank 1: common, nontraceable, or untraceable