Managerial Accounting Chapter 6

What components make up the unit product cost under the absorption costing method?

Direct materials, direct labor, variable and fixed manufacturing overhead

When the units produced equal the units sold, absorption costing NOI will _______ variable costing NOI

Equal (When production equals sales, all fixed manufacturing overhead incurred in the current period flows through the income statement under both methods)

True or False: The cost of a unit of product in inventory or COGS under the variable costing method includes the cost of fixed manufacturing overhead

False (Known as direct or marginal costing)

True or False: Variable and absorption costing account for fixed manufacturing overhead the same way

False (they account for it differently)

True or False: Selling and administrative expenses are always treated as product costs, regardless of the costing method

False (they are NEVER treated as product costs EVER)

True or False: Absorption costing income statements take into account variable and fixed cost distinctions

False (they ignore them)

The essential difference between variable costing and absorption costing is how each method accounts for what? (all other costs are treated the same under each method)

Fixed manufacturing overhead costs

Because absorption costing includes all manufacturing costs in product costs, it is frequently referred to as what?

Full cost method

When absorption costing is used, fluctuations in NOI can be caused by changes in what 2 things?

Inventory, sales

What are the only costs included in product costs under the absorption method?

Manufacturing

Does the amount of units produced affect Net Operating Income?

No

Is it unusual for variable and absorption costing NOI's to be different?

No

What type of cost is FIXED manufacturing overhead under the variable costing method: Product or Period?

Period (expenses in its entirety each period like S&AE)

Absorption costing treats all manufacturing costs as ________ costs, regardless of whether they are variable or fixed

Product

Represents the margin available after a segment has covered all of its own costs; best gauge of the long run profitability of a segment (includes only those costs caused by the segment)

Segment Margin

What is the best gauge of the long run profitability of a segment?

Segment Margin

What is the best way to evaluate the profitability of different segments within a business?

Segmented Income Statement

When the units produced exceed unit sales and hence inventories increase, NOI is higher under which costing method?

absorption

In variable costing, fixed manufacturing overhead costs are considered to be period costs (like S&A expenses) and are taken immediately to the _________ statement as period expenses

income

Under absorption costing, changes in what 2 things cause NOI to fluctuate?

inventory, sales

For companies that use _________ production, the number of units produced tends to equal the number of units sold

lean production

Under variable costing, only those manufacturing costs that vary with _______ are treated as product costs

output

Under variable costing, what type of cost is fixed manufacturing overhead treated as?

period (expensed entirely in each period it is created)

Only manufacturing costs are included in ________ costs under absorption costing

product

Under absorption costing, when more units are sold than produced, some of the fixed manufacturing overhead of previous periods is _______ from inventories

released

To find the variable S&AE under the variable costing method, multiply the S&AE per unit x the amount of units _____

sold

Variable manufacturing costs per unit are ______

stable

What type of costs are treated as product costs under variable costing?

Direct Labor, Direct Materials, Variable part of manufacturing overhead

Both income statement formats include product costs and period costs, but they define these cost classifications ___________

Differently

Changes in inventories affect NOI under which costing method?

Absorption

If inventory increases during a period, some of the fixed manufacturing overhead will be deferred in ending inventories under which costing method?

Absorption

If more units are produced than sold in a period, NOI will be higher under which costing method?

Absorption

Most companies use __________ costing for their external and internal reports

Absorption

What type of costing categorizes costs by function? (manufacturing v. selling and administrative

Absorption

When units produced exceed units sold, which NOI will be higher?

Absorption

What is the most widely used method of determining product costs?

Absorption Costing

When unit sales exceed units produced and inventories decrease, NOI is lower under which costing method?

Absorption Costing

Depreciation of corporate facilities is what type of fixed cost?

Common

The salary of the CEO of GM is a __________ Fixed Cost of the various divisions of GM

Common

________ Fixed Cost supports the operations of more than one segment, but is not traceable in whole or in part to any one segment

Common

What is the best gauge for decisions involving short-run changes in volume?

Contribution Margin

The maintenance cost for the building in which Boeing 747's are assembled is a __________ fixed cost of the 747 business segment of Boeing

Traceable

________ Fixed Cost of a segment is a fixed cost incurred because of the existence of the segment; if the segment had not existed, the fixed cost would not have been incurred; if the segment were eliminated, the fixed cost would disappear

Traceable

True or False: The cost of a unit of product under the absorption costing method includes direct materials, direct labor, AND BOTH variable and fixed manufacturing overhead

True

True or False: Traceable fixed costs are charged to segments and common fixed costs are not

True

True or False: US GAAP and IFRS require that publicly traded companies include segmented financial and other data in their annual reports AND that segmented reports prepared for external users must use the same methods and definitions that the companies internal segmented reports use

True

True or False: Under both absorption and variable costing methods, selling and administrative expenses are always period costs and expensed as incurred

True

True or False: Under variable costing, only the variable manufacturing costs are included in unit product costs

True

True or false: Absorption costing income statements ignore variable and fixed cost distinctions

True

Fixed costs that are traceable to one segment may be a common cost of another segment

True or False:

If more units are sold than produced in a period (inventories decrease), NOI will be higher under which costing method?

Variable

What type of costing categorizes costs according to how they behave? (fixed and variable divided)

Variable

Even if a segment were eliminated, there would be no real change in a true _______ fixed cost

common

Variable costing income statements are grounded in the ___________ format

contribution

Absorption costing is attractive to many accountants and managers because they feel it better matches ______ with _______

costs, revenues

Variable costing is referred to as _______ costing or ________ costing

direct, marginal

Under _________ costing, only those manufacturing costs that vary with output are treated as product costs

variable

In absorption costing, fixed manufacturing overhead costs are included as a part of what?

work in process inventories (when units are complete, they transfer to finished goods, then to CGS as apart of income statement when sold)