Managerial Accounting: Chapter 6
True
T/F: Both absorption and variable costing income statements include product and period costs.
True
T/F: Contribution margin is most useful in decisions involving short-run changes in sales volume such as pricing special orders.
False; Costs are organized by FUNCTION when using absorption costing.
T/F: Costs are organized by behavior when using absorption costing.
True
T/F: Costs are organized by behavior when using variable costing.
True
T/F: When there is no change in inventory, net operating income will be the same under both absorption and variable costing.
variable
Costs are separated between variable and fixed expenses when using _________________(absorption/variable) costing.
variable
The number of units produced does not affect net operating income when using ________________(absorption/variable) costing.
True
T/F: Absorption costing and variable costing net operating income will be equal when the number of units produced equals the number of units sold or when there is no beginning and no ending inventory.
True
T/F: An absorption costing income statement calculates gross margin by deducting cost of goods sold from sales.
True
T/F: Any allocation of common costs to segments reduces the value of the segment margin as a measure of long-run profitability and segment performance.
False; Net operating income is less under absorption costing than under variable costing when inventory for the period DECREASES.
T/F: Net operating income is less under absorption costing than under variable costing when inventory for the period increases.
False; Net operating income is reported higher under ABSORPTION costing.
T/F: Net operating income is reported higher under variable costing.
True
T/F: Selling and administrative expenses are the same amount on both the absorption and variable costing income statements.
False; The correct order of a contribution format income statement is: Sales Variable Expenses Contribution Margin Fixed Expenses Net Operating Income
T/F: The following items are in this order on a contribution format income statement: Sales Variable Expenses Fixed Expenses Contribution Margin Net Operating Income
True
T/F: Under variable costing, fixed manufacturing overhead and selling and administrative expenses are treated as period costs.
period
Under both variable costing and absorption costing, variable and fixed selling and administrative costs are treated as ______________(product/period) costs.
Variable Costing Cost of Goods Sold
Unit Product Cost X Units Sold = ?
Segment Margin
Contribution Margin - Traceable Fixed Costs = ?
segment
any part or activity of an organization about which managers seek cost, revenue, or profit data
segment margin
represents the margin available after a segment has covered all its own traceable costs
Variable Costing Net Income
(Units Sold X Contribution Margin Per Unit) - Total Fixed Expenses = ?
Fixed manufacturing overhead is deferred in the inventory account on the balance sheet when inventory increases.
Absorption and variable costing net income are usually different due to the accounting for what?
product
Absorption costing treats fixed manufacturing overhead as a ______________(product/period) cost.
absorption
Fixed manufacturing overhead costs are expenses as units are sold as part of cost of goods sold under __________________(absorption/variable) costing.
variable
Fixed manufacturing overhead costs are expenses in full with period costs under ___________________(absorption/variable) costing.
absorption
Fixed manufacturing overhead costs are included as part of Work in Process inventory under _________________(absorption/variable) costing.
period
Fixed manufacturing overhead is treated as a _______________(product/period) cost when using variable costing.
absorption
For external reporting, income statements are generally prepared using ___________________(absorption/variable) costing.
variable
For internal decision making, ___________________(absorption/variable) costing is used.
absorption
In order to comply with GAAP and IFRS, the ____________________(absorption/variable) costing method must be used for external reporting in the United States.
1. direct materials 2. direct labor 3. variable manufacturing overhead
Name the 3 costs that are included in variable costing.
1. direct materials 2. direct labor 3. variable manufacturing overhead 4. fixed manufacturing overhead
Name the 4 costs that are included in absorption costing.
1. direct materials 2. direct labor 3. fixed manufacturing overhead 4. variable manufacturing overhead
Product costs under absorption costing include what 4 things?
contribution margin
Variable costing income net income is computed by multiplying the number of units sold by the __________________ _________________ per unit and subtracting total fixed expenses.
segment margin
_______________ ________________ is the best measurement of the long-run profitability of a segment, because it only includes costs that are caused by the segment.
absorption
_________________(absorption/variable) costing separates costs between product and period.
absorption costing
a costing method that includes all manufacturing costs-direct materials, direct labor, and both variable and fixed manufacturing overhead- in unit product costs
variable costing
a costing method that includes only variable manufacturing costs- direct materials, direct labor, and variable manufacturing overhead- in unit product costs
traceable fixed cost
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
common fixed cost
a fixed cost that supports more than one business segment, but is NOT traceable in whole or in part to any one of the business segments
False; On a VARIABLE costing income statement, selling and administrative expenses are separated into fixed and variable expenses.
T/F: On an absorption costing income statement, selling and administrative expenses are separated into fixed and variable expenses.
True
T/F: Selling and administrative expenses are always treated as period costs under absorption and variable costing.
False; Under variable costing, direct materials, direct labor, and manufacturing overhead are treated as PRODUCT costs.
T/F: Under variable costing, direct materials, direct labor, and variable manufacturing overhead are treated as period costs.
False; 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.
T/F: When allocating fixed manufacturing overhead cost to units under absorption costing, the total fixed overhead costs must be divided by the number of units sold.
True
T/F: When units produced exceed units sold, net operating income will generally be higher under absorption costing than variable costing.
False; When units sold exceed units produced, net income under variable costing will generally be HIGHER than net income under absorption costing.
T/F: When units sold exceed units produced, net income under variable costing will generally be lower than net income under absorption costing.