Chp 6
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. True False
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. True False
False
When viewed over the long term, cumulative net operating income will be the same for variable and absorption costing if ending inventories exceeds beginning inventories. True False
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. True False
False
Under conventional absorption costing, the fixed costs associated with idle production capacity are not included as part of the product cost. True False
False
Under variable costing, variable production costs are not treated as product costs. True False
False
Because absorption costing emphasizes costs by behavior, it works well with cost-volume-profit analysis. True False
False
Common fixed expenses should be allocated to business segments when performing break-even calculations and making decisions. True False
False
Direct materials are considered to be a product cost under variable costing but not absorption costing. True False
False
The term gross margin is used in reports prepared using: A. Both absorption costing and variable costing. B. Absorption costing but not variable costing. C. Variable costing but not absorption costing. D. Neither variable costing nor absorption costing.
B
Under absorption costing, fixed manufacturing overhead costs: A. Are deferred in inventory when production exceeds sales. B. Are always treated as period costs. C. Are released from inventory when production exceeds sales. D. Are ignored.
A
When sales are constant, but the number of units produced fluctuates, net operating income determined by the absorption costing method will: A. Tend to fluctuate in the same direction as fluctuations in the number of units produced. B. Tend to remain constant. C. Tend to fluctuate in the opposite direction as fluctuations in the number of units produced. D. Fluctuate without any relation to the number of units produced.
A
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: A. Be equal to the net operating income under variable costing. B. Be greater than the net operating income under variable costing. C. Be equal to the net operating income under variable costing plus total fixed manufacturing costs. D. Be equal to the net operating income under variable costing less total fixed manufacturing costs.
B
The principal difference between variable costing and absorption costing centers on: A. Whether variable manufacturing costs should be included in product costs. B. Whether fixed manufacturing costs should be included in product costs. C. Whether fixed manufacturing costs and fixed selling and administrative costs should be included in product costs. D. Whether selling and administrative costs should be included in product costs.
B
When production exceeds sales and the company uses the LIFO inventory flow assumption, the net operating income reported under absorption costing generally will be: A. Less than net operating income reported under variable costing. B. Greater than net operating income reported under variable costing. C. Equal to net operating income reported under variable costing. D. Higher or lower because no generalization can be made.
B
When using data from a segmented income statement, the dollar sales for the company to break even overall is equal to: A. (Allocated fixed expenses + Traceable fixed expenses) ÷ Overall CM ratio B. (Traceable fixed expenses + Common fixed expenses) ÷ Overall CM ratio C. (Non-traceable fixed expenses + Common fixed expenses) ÷ Overall CM ratio D. (Traceable fixed expenses) ÷ Overall CM ratio
B
Managers will often allocate common fixed expenses to business segments because: A. This is required by law. B. Not allocating these costs will lead to bad decisions. C. They believe this practice will ensure that the company's common fixed expenses are covered. D. They do not want the sum of the business segment margins to equal the net operating income for the company.
C
When using data from a segmented income statement, the dollar sales for a segment to break even is equal to: A. Common fixed expenses ÷ Unit CM B. Common fixed expenses ÷ Segment CM ratio C. Traceable fixed expenses ÷ Unit CM D. Traceable fixed expenses ÷ Segment CM ratio
D
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. True False
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. True False
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. True False
False
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 False
True
Common fixed costs should not be charged to the individual segments when preparing a segmented income statement. True False
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 False
True
Net operating income is affected by the number of units produced when absorption costing is used. True False
True
Segment margin is a better measure of the long-run profitability of a segment than contribution margin. True False
True
The costs assigned to units in inventory are typically lower under variable costing than under absorption costing. True False
True
Under absorption costing, fixed manufacturing overhead is treated as a product cost. True False
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 False
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 False
True
Under variable costing, fixed manufacturing overhead cost is not treated as a product cost. True False
True
Under variable costing, product cost does not contain any fixed manufacturing overhead cost. True False
True
Under variable costing, product costs consist of direct materials, direct labor, and variable manufacturing overhead. True False
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 False
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 False
True
