Chapter 7 smartbook
True
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.
absorption and variable
Costs are categorized by function when using ________ costing costing and by behavior when using ________ costing
$47
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. Variable selling and administrative costs are $11 per unit sold and fixed selling and administrative costs are $13,200. The unit product cost using variable costing is ______ per unit.
variable
The number of units produced does not affect net operating income when using ________ costing
variable and absorption
The two general costing approaches used by manufacturing companies to prepare income statements are ____________ costing and __________ costing
1. inappropriately assigning traceable fixed costs 2. omitting costs that should be included 3. arbitrarily allocating common fixed costs
Common mistakes made by companies when assigning costs to segments include ______.
1. require that the same method be used for both internal and external segment reporting 2. create problems in reconciling internal and external reports 3. require segmented financial data be included in annual reports
GAAP and IFRS rules for publicly traded companies
absorption
In order to comply with GAAP and IFRS, the ______ costing method must be used for external reporting in the United States.
1. distorts the profitability of segments. 2. could reduce the overall profits of the company. 3. holds managers responsible for costs they cannot control.
Incorrectly or arbitrarily assigning common costs to segments:
traceable
Only costs that would disappear over time if a segment disappeared should be treated as _________ fixed costs
$175,000
PL 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 ______.
absorption costing only
Fixed manufacturing overhead costs are included as part of Work in Process inventory under ______.
calculates contribution margin while the absorption costing income statement calculates gross margin and focuses on fixed and variable expenses, while an absorption costing income statement focuses on period and product costs
A variable costing income statement does what?
fixed manufacturing overhead
Absorption and variable costing net income are usually different due to the accounting for ______.
increase
Absorption costing can lead managers to mistakenly believe that fixed manufacturing overhead costs will ______ in total as the number of units produced increases. Multiple choice question.
required by GAAP and IFRS and is used by most companies for both internal and external reports
Absorption costing is
depreciation cost on the equipment used to manufacture the Corvettes
An example of a traceable fixed cost for General Motors' Corvette Division is the
traceable
An otherwise profitable segment may appear to be unprofitable if __________ fixed costs are allocated to it.
absorption
Because non-manufacturing costs are not included as costs of a product, the use of _______ costing can lead to the omission of segment costs.
absorption
Financial statement users need to be aware of changes in inventory levels when using ________ costing
absorption and variable
For external reporting, income statements are generally prepared using __________ costing, while __________ costing is used for internal decision making purposes.
higher than
Net operating income under absorption costing is generally ______ net operating income under variable costing in periods in which inventory increases.
product
Absorption costing treats fixed manufacturing overhead as a ______ cost.
may be prepared for activities at many levels in a company
Segmented income statements ______.
segment margin only
Assigning common fixed costs to segments impacts
variable, absorption
Costs are separated between variable and fixed expenses when using ______ costing, whereas ______ costing separates costs between product and period.
should not be allocated to other segments
Costs that can be traced directly to a segment ______.
pricing; drop
Decision-making problems that could occur when using absorption costing include inappropriate ______ decisions, and decisions made to ______ products that are, in fact, profitable.
$11,000
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 ______.
only traceable
Segment break-even calculations include Blank______ fixed expenses.
variable
Segment contribution margin equals segment revenue minus the _______ expenses for the segment.
both variable and fixed manufacturing
Under absorption costing product costs consist of __________ costs.
fixed manufacturing overhead.
Under variable costing the cost of a unit of inventory does not contain:
omission of upstream and downstream costs and under-costing of segments.
Using absorption costing for segmented income statements can lead to:
contribution margin
Variable costing income statements are based upon a ______ format.
common fixed cost will remain unchanged and traceable fixed cost will disappear
When a segment is eliminated, a ______.
the segment's traceable fixed costs and the segment's contribution margin
When calculating the profit impact of discontinuing a segment, consider ______.
traceable fixed expenses are deducted from contribution margin and cost of goods sold consists of only variable manufacturing costs.
When preparing a segment margin income statement:
expensed in the period incurred
When using variable costing, fixed manufacturing overhead is
traceable fixed cost to the plant and a common fixed cost
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, common
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 of a store is the ________ fixed cost of the store and the _________ fixed cost of each product line sold in the store.
Computing contribution margin instead of gross margin.
Which of the following is NOT a common mistake made in preparing segmented income statements? 1. Arbitrarily dividing common costs among segments. 2. Computing contribution margin instead of gross margin. 3. Using inappropriate allocations bases. 4. Omitting costs that should be included.
1. Both income statements include product and period costs. 2. Reported net income on the statements often differ
Which of the following statements are correct regarding income statements prepared under variable and absorption costing? 1. Both income statements include product and period costs. 2. Reported net income on the statements often differ. 3. Absorption costing categorizes costs based on cost behavior. 4. The difference between the statements is how total manufacturing overhead is accounted for.
CVP analysis requires costs to be broken down between variable and fixed which is not done in absorption costing.
Why is CVP analysis more difficult when using absorption costing than when using variable costing?