A202 smartbook chapter 4

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

depreciation cost on the equipment used to manufacture the Corvettes

Segment break-even calculations include:

only traceable fixed expenses

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

A company's operations can be divided by product lines, geographical area, manufacturing plants, service centers or sales territories, which are known as ______

segments

When there is no change in inventory, net operating income will be:

the same under both absorption costing and variable costing

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

timing of when fixed manufacturing overhead is expensed

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

traceable

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

fixed overhead is accounted for

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

disappear

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

probably be dropped

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

profitability

When using variable costing, fixed manufacturing overhead is:

expensed in the period incurred

If a segment is entirely eliminated, common fixed costs will:

not change

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

Blink sells and manufactures frames for eyeglasses. The unit product cost for frame #47320 is $76.35. Last period, Blink produced 200 frames and sold 155 of them. Total cost of goods sold equals:

$11,834.25

The Quaint Quilt produces and sells handmade quilts. Variable manufacturing costs total $140 per quilt. Fixed manufacturing overhead totals $68,250 per quarter. Variable selling and administrative costs are $19 per quilt sold, and fixed selling and administrative costs are $50,000 per quarter. Last quarter, the company produced 910 quilts and sold 780 quilts. The total variable cost reported on Quaint Quilt's variable costing income statement is:

$124,020

Given the following information, calculate the unit product cost under absorption costing. Direct materials: $50/unit; Direct labor: $75/unit; Variable manufacturing overhead: $27/unit; Fixed manufacturing overhead: $30,000; Units produced: 10,000; Units sold: 6,000.

$155

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:

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

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(n) ______ fixed cost for the store, and a(n) _______ fixed cost for each product line sold in the store

- traceable - common

Variable costing income statements separate ______ expenses from ______ expenses.

- variable - fixed

When preparing a contribution margin income statement:

- variable and fixed costs are listed in separate sections of the statement - cost of goods sold consists of only variable manufacturing costs

When inventory increases, which costing method generally results in higher net income?

Absorption costing

True or false: Absorption costing and variable costing always result in the same net operating income each year.

False

True or false: Under absorption costing, fixed overhead is treated like a variable cost because a portion of the total cost is allocated to each unit produced, rather than being expensed as one large sum.

True

An absorption costing income statement calculates:

gross margin by deducting cost of goods sold from sales

When units sold exceed units produced, net income under variable costing will generally be _______ net income under absorption costing.

higher than

When units produced exceed units sold, net income will generally be:

higher under absorption costing than under variable costing

A traceable fixed cost:

is incurred because of the existence of the segment

The segment margin represents the:

margin available after a segment has covered all of its own costs

Segmented income statements:

may be prepared for activities at many levels in a company

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

Citrus Scents produces body sprays. Each bottle has a unit product cost of $5.38. The company produced 1,490 bottles this month and sold 1,203 of those bottles. Total cost of goods sold was:

$6,472.14

Comfy Cozy Chairs makes and sells rockers. Each rocker requires $45 of direct materials and $37 of direct labor. Variable manufacturing overhead amounts to $8 per unit, and fixed manufacturing overhead totals $58,000. Variable selling and administrative costs amount to $15 per unit, and fixed selling and administrative costs total $102,000. During the period, 2,000 rockers were produced and 1,640 were sold. The unit product cost using absorption costing is

- $119 - $45 + $37 + $8 + ($58,000/2,000) = $119

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:

- $175,000 - Reason: $70,000/40% = $175,000

Product costs under absorption costing are:

- Fixed manufacturing overhead - Variable manufacturing overhead - Direct labor - Direct materials

Which of the following statements are correct regarding income statements prepared under variable and absorption costing?

- Reported net income on the statements often differ. - Both income statements include product and period costs.

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

- absorption - variable

If a segment is eliminated, ______ fixed costs that are not traced to the segment will not change.

- common

Granny's Touch manufactures and sells cookbooks. The company's variable cost of goods sold is $39,200 and variable selling and administrative expense is $6,200. Fixed manufacturing overhead is $19,700 and fixed selling and administrative expense is $9,290. An income statement prepared using variable costing shows $

28,990

Blissful Breeze manufactures and sells ceiling fans. Each fan has a unit product cost of $112 and a unit selling price of $190. If Blissful Breeze produces 900 fans and sells 842 fans this month, the total cost of goods sold will be $

94,304

True or false: Cost, profit and investment centers are segments, but sales territories, manufacturing plants, and service departments are not segments.

False

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

absorption costing only

Under variable costing the cost of a unit of inventory does not contain:

fixed manufacturing overhead

Variable costing treats ______ manufacturing costs as product costs.

only variable

Sleep Tight manufactures pillows. The company incurred $42,000 of fixed manufacturing overhead cost this year. Variable unit product cost was $17. Variable selling and administrative cost was $9 per unit and fixed selling and administrative expenses totaled $59,000. The company manufactured 28,000 pillows and sold 15,408. Total fixed expenses on the variable costing contribution format income statement equal:

$101,000

Fixed manufacturing overhead costs are expensed as units are sold as part of cost of goods sold under _______ costing, and expensed in full with period costs under _______ costing.

- absorption - variable

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

- absorption - variable

The two general costing approaches used by manufacturing companies to prepare income statements are ______ costing and _______ costing.

- absorption - variable

A segment should be discontinued when the segment:

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

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: Common fixed expenses are not considered when computing segment break-even.

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

- higher than - Reason: Company-wide will always be higher because segment break-even does not include common fixed expenses.

The unit product cost of a blender is $24. If 900 blenders are produced and 849 blenders are sold, the total cost of goods sold is $

20,376

When inventory decreases, cost of goods sold under absorption costing will be ______ cost of goods sold under variable costing.

more than

Segment contribution margin equals segment revenue minus the ______ expenses for the segment.

variable

Frames, Inc. manufactures large wooden picture frames. Each frame requires $19 of direct materials and $40 of direct labor. Variable manufacturing overhead cost is $9 per frame produced, and variable selling and administrative expense is $13 per frame sold. The company produces 5,000 units each month and total fixed manufacturing overhead cost per month is $15,000. The unit product cost of each frame using variable costing is $

68

Variable costing income statements are based upon a ________ format.

contribution margin

When the number of units produced equals the number of units sold:

- absorption costing net income is equal to variable costing net income - under both absorption costing and variable costing, all fixed overhead incurred flows to the income statement.

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 and fixed manufacturing overhead cost is $19,000 in total. Variable selling and administrative costs are $11 per unit sold and fixed selling and administrative costs are $13,200. Last period, 800 gloves were produced, and 585 gloves were sold. The unit product cost using variable costing is:

$47 per unit

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

Pearls, Pearls, Pearls! manufactures and sells jewelry. The total variable cost of goods sold this month is $72,490. Variable selling and administrative cost is $22 per unit sold. If 350 units are produced and 314 units are sold this month, the total variable cost reported on the income statement for the month is $

79,398