Managerial Accounting Test 2

a traceable fixed cost

is incurred because of the existence of the segment

If a segment is entirely eliminated, common fixed costs will

not change

A company with three segments has $10,000 in common fixed expenses. All three segments are at the break-even point. As a result, the company:

has an overall net operating loss of $10,000 Reason: If all three segments are at the break-even point, common fixed expenses have not been covered.

Absorption costing can lead managers to mistakenly believe that fixed manufacturing overhead costs will ______ as the number of units produced increases.

increase in total

When using absorption costing an explaining changes in operating income, financial statement users need to be aware of changes in

inventory

One mistake companies make when preparing segmented income statements is arbitrarily assigning ______ fixed costs to segments

common

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)

common fixed cost

Variable costing income statements are based upon a ________ format.

contribution margin

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

fixed overhead is accounted for

A segment should be discontinued when the segment:

has a contribution margin that cannot cover traceable fixed costs; cannot cover its own costs

Two general costing approaches used by manufacturing companies to prepare income statements are _____ costing and _____ costing

variable; absorption

Discontinuing a profitable segment results in:

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

Advocates of _____ costing believe fixed costs are an essential part of product production.

absorption

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

absorption

Net income computed under _____ costing may not agree with the results of CVP analysis

absorption

the use of __ costing can lead to the omission of segment costs because non manufacturing costs are not included as costs of a product

absorption

SPS Products has two divisions-Catalog Sales and Online Sales. For the last quarter the Catalog Sales segement margin was ($5000). Online sales were 100,00. Online Sales contribution margin was 60,000 and its segment margin was $40,000. If Cataog Sales are discontinued, it is estimated that online sales will increase by 10%. Calculate the expected profit impact of Discontinuing Catalog Sales.

$11,000 (New online sales contribution margin is 100,000 x 10% x 60,000/100,000) = $6,000 + 5,000 saved from stopping catalog sales = 11,000))

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:

$70,000 / 40% = $175,000.

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:

11000

Product Cost Formula =

Direct Labor + Direct Material + Factory Overheads

An absorption costing income statement calculates:

Gross margin by deducting cost of goods sold from sales

Incorrectly or arbitrarily assigning common costs to segments:

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

Using absorption costing for segmented income statements can lead to: Multiple select question. omission of upstream and downstream costs inconsistencies between internal and external reports under-costing of segments the need to maintain two costing systems

Omission of upsteam and downstream costs; under-costing of segments

Cost of goods sold

Product cost * Sold product

Differences in net operating income between absorption costing and variable costing is due to the:

Timing of when fixed manufacturing overhead is expensed

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 _____ fixed cost for the store, and a _____ fixed cost for each product line sold in the store

Traceable; common

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

absorption costing only

Costs are categorized by function when using costing _______ and by behavior when using ______ costing

absorption; variable

For external reporting, income statements are generally prepared using _____ costing, and _____ costing is used for internal decision making purposes

absorption; variable

Costs are categorized by function when using ______ costing and by behavior when using ___ costing

absorption; variable/contribution

Under absorption costing product costs consist of:

both variable and fixed manufacturing costs

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

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) _____ fixed cost.

common

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

An example of a traceable fixed cost for General Motors' Corvette Division is the:

depreciation cost on the equipment used to manufacture the Corvettes

Product costs under absorption costings are

direct materials, variable manufacturing overhead, direct labor

Segment break-even calculations include:

only traceable fixed expenses

segment break-even calculations include

only traceable fixed expenses

Variable costing treats ______ manufacturing costs as product costs.

only variable

Variable costing treats fixed manufacturing overhead as a _____ cost

period

When a segment cannot cover its own costs, that segment should:

probably be dropped

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

Absorption costing treats fixed manufacturing overhead as a ____ cost

product

The variable costing income statement separates

product and period costs

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

profitability

GAAP and IFRS rules

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

contribution margin income statement

sales -variable expenses contribution margin -fixed expenses net operating income

Costs that can be traced directly to a segment:

should not be allocated to other segments

costs that can be traced directly to a segment should be charge directly to that segment

should not be allocated to other segments

The segment margin equals the segment's contribution margin less the segment's _______ fixed costs.

traceable

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:

traceable fixed cost to the plant and a common fixed cost for the individual product lines made in the plant

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

traceable; contribution margin

When using absorption costing, fixed manufacturing overhead cost per unit = total fixed manufacturing overhead divided by

units produced

Absorption costing is

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

Segment contribution margin equals segment revenue minus the ___ expenses for the segment

variable

The number of units produced does not affect net operating income when using _____ costing

variable

direct costing or marginal costing are other terms for _____ costing

variable

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

variable; absorption

Allocating ________ fixed costs to a segment may cause an otherwise profitable segment to appear unprofitable.

common

The general guideline is to treat as traceable only those costs that would _______ over time if the segment was discontinued.

disappear

Variable costing income statements separate ____ expenses from ____ expenses

variable; fixed

Using variable costing and the contribution approach for internal decision making

facilitates explaining changes in net income, supports decision making, enables CVP analysis

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

fixed manufacturing overhead

Product costs under absorption costing are

fixed manufacturing overhead, direct materials, variable manufacturing overhead

An absorption costing income statement calculates

gross margin by deducting cost of goods sold from sales

The company-wide break-even sales will always be ______ the sum of the segment break-even sales

higher