Chapter 6

When allocating fixed manufacturing overhead cost to units under absorption costing, the total fixed overhead costs must be divided by the number of units (1). (Enter only one word per blank.)

1. produced

Match the costing method with the way costs are separated for the method.

Absorption costing: Manufacturing and selling and administrative Variable costing: Variable and fixed

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.

True or false: 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

Fixed manufacturing overhead costs are included as part of Work in Process inventory under ______.

absorption costing only

When inventory increases, absorption costing net operating income is higher than variable costing net income due to the fixed manufacturing overhead ______.

deferred in the inventory account on the balance sheet

When using variable costing, fixed manufacturing overhead is:

expensed in the period incurred

The difference between reported net income on variable costing and absorption costing income statements is based on how ______.

fixed overhead is accounted for

If a segment is entirely eliminated, common fixed costs will ______.

not change

Select all that apply When calculating the profit impact of discontinuing a segment, consider _____.

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

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

variable, absorption

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 ______.

$11,000

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 $(1). (Enter your answer as a whole number.)

1. 79,398

True or false: Absorption costing and variable costing always result in the same net operating income each year.

False

True or false: Under absorption costing, fixed overhead is treated like a variable cost because a portion of the total cost is allocated to each unit produced, rather than being expensed as one large sum.

True

Variable costing income statements are based upon a ______ format.

contribution margin

The segment margin is a valuable tool for assessing the long-run ______ of a segment.

profitability

Assigning common fixed costs to segments impacts ______.

segment margin only

Select all that apply Discontinuing a profitable segment results in ______.

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

The variable costing income statement separates ______.

variable and fixed expenses

Select all that apply When a segment is eliminated, a ______.

common fixed cost will remain unchanged traceable fixed cost will disappear

Absorption and variable costing net income are usually different due to the accounting for ______.

fixed manufacturing overhead

Under variable costing the cost of a unit of inventory does not contain ______.

fixed manufacturing overhead

Select all that apply Incorrectly or arbitrarily assigning common costs to segments ______.

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

Select all that apply Common mistakes made by companies when assigning costs to segments include ______.

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

A traceable fixed cost ______.

is incurred because of the existence of the segment

The segment margin is obtained by deducting the ______ fixed costs of a segment from the segment's ______.

traceable; contribution margin

Select all that apply Using absorption costing for segmented income statements can lead to ______.

under-costing of segments omission of upstream and downstream costs

An otherwise profitable segment may appear to be unprofitable if (1) fixed costs are allocated to it. (Enter only one word per blank.)

1. common

Variable costing treats fixed manufacturing overhead as a(n) (1) cost. (Enter only one word per blank.)

1. period

Direct costing or marginal costing are other terms for (1) costing. (Enter only one word per blank.)

1. variable

Variable costing income statements separate (1) expenses from (2) expenses. (Enter only one word per blank.)

1. variable 2. fixed

Fixed manufacturing overhead costs are expensed as units are sold as part of cost of goods sold under (1) costing, and expensed in full with period costs under (2) costing. (Enter only one word per blank.)

1. absorption 2. variable

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.

require

A fixed cost that supports the operations of more than one segment, but is not traceable in whole or part to any one segment is a(n) (1) fixed cost. (Enter only one word per blank.)

1. common

One mistake companies make when preparing segmented income statements is arbitrarily assigning (1) fixed costs to segments. (Enter only one word per blank.)

1. common

Click and drag on elements in order Place the following line items in order to construct a contribution format income statement.

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

Select all that apply Absorption costing is ______.

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

Select all that apply A variable 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

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 $(1). (Enter your answer as a whole number.)

1. 68

Under absorption costing product costs consist of ______.

both variable and fixed manufacturing costs

Absorption costing treats fixed manufacturing overhead as a ______ cost.

product

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

Computing contribution margin instead of gross margin.

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

absorption

Segment break-even calculations include ______.

only traceable fixed expenses

Variable costing treats ______ manufacturing costs as product costs.

only variable

Costs that can be traced directly to a segment ______.

should not be allocated to other segments

Comfy Cozy Chairs makes and sells rockers. Each rocker requires $45 of direct materials and $37 of direct labor. Variable manufacturing overhead amounts to $8 per unit, and fixed manufacturing overhead totals $58,000. Variable selling and administrative costs amount to $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 ______.

$119

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 ______.

$124,020

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

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 $(1). (Enter your answer as a whole number.)

1. 94,304

The use of (1) costing can lead to the omission of segment costs because nonmanufacturing costs are not included as costs of a product. (Enter only one word per blank.)

1. absorption

Costs are categorized by function when using (1) costing and by behavior when using (2) costing. (Enter only one word per blank)

1. absorption 2. variable

If a segment is eliminated, (1) fixed costs that are not traced to the segment will not change. (Enter only one word per blank.)

1. common

Only costs that would disappear over time if a segment disappeared should be treated as (1) fixed costs. (Enter only one word per blank.)

1. traceable

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 ______.

$175,000

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.

$47

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

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) (1) fixed cost for the store, and a(n) (2) fixed cost for each product line sold in the store. (Enter only one word per blank.)

1. traceable 2. common

Select all that apply GAAP and IFRS rules ______.

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

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

When using absorption costing, fixed manufacturing overhead cost per unit = Total fixed manufacturing overhead divided by ______.

units produced