ACC 1820 - Variable Costing & Segment Reporting

Absorption costing net income is calculated by subtracting selling and administrative expenses from ____ ________

Gross Margin

Managers who believe that all manufacturing costs must be assigned to products in order to properly match the cost of production with sales are advocates of __________ costing

Absorption

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

Absorption Variable

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

higher than

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

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. The unit product cost of each frame using variable costing is $

68

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

Variable

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

Variable Absorption

Common mistakes made by companies when assigning costs to segments include _________

arbitrarily allocating common fixed costs inappropriately assigning traceable fixed costs omitting costs that should be included

An otherwise profitable segment may appear to be unprofitable if ______ fixed costs are allocated to it.

common

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

common

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

depreciation on equipment used to manufacture Corvettes

Product costs under absorption costing include _____

direct labor variable manufacturing overhead fixed manufacturing overhead direct materials

Using variable costing and the contribution approach for internal decision making ________

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

When using variable costing, fixed manufacturing overhead is ______.

expensed in the period incurred

Absorption costing net operating income may not agree with the net operating income calculated for CVP analysis due to the way in which _____ is handled in absorption costing.

fixed manufacturing overhead

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

fixed manufacturing overhead

A variable costing income statement _______

focuses on fixed and variable expenses, while an absorption costing income statement focuses on period and product costs calculates contribution margin while the absorption costing income statement calculates gross margin

An absorption costing income statement calculates _______

gross margin by deducting cost of goods sold from sales

A segment should probably be dropped when the segment

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

The segment margin represents the

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

Using absorption costing for segmented income statements can lead to

omission of upstream and downstream costs under-costing of segments

Segment break-even calculations include ______ fixed expenses

only traceable

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

U.S. GAAP and IFRS ______ publicly traded companies include segmented financial data prepared for external users that use the same methods used in internal segment reports.

require

GAAP and IFRS rules for publicly traded companies

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

Absorption costing is ____

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

Assigning common fixed costs to segments impacts

segment margin only

Costs that can be traced directly to a segment

should not be allocated to other segments

When calculating the profit impact of discontinuing a segment, consider

the segment's contribution margin the segment's traceable fixed costs

Only costs that would disappear over time if a segment disappeared should be treated as _____ fixed costs

traceable

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

variable Absortion

Discontinuing a profitable segment results in ______

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

Variable costing income statements are based upon a ______ format

Contribution Margin

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

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

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

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

Direct costing or marginal costing are other terms for _______ costing

Variable

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

Variable

A segment should probably be dropped when the segment _______

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

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

$42,000 + $59,000 = $101,000

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

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

$76.35 × 155 = $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

($140 + $19) × 780 quilts sold = $124,020

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

Absorption

Because nonmanufacturing costs are not included as costs of a product, the use of ____________ costing can lead to the omission of segment costs.

Absorption

Financial statement users need to be aware of changes in inventory levels when using __________ costing.

Absorption

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

Absorption

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

Common

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

Fixed overhead is accounted for

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

Increase

Decision-making problems that could occur when using absorption costing include inappropriate ______ decisions, and decisions made to ______ products that are, in fact, profitable.

Pricing Drop

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

Probably be dropped

When using absorption costing, fixed manufacturing overhead cost per unit = Total fixed manufacturing overhead cost divided by units:

Produced

Absorption costing treats fixed manufacturing overhead as a ______ cost

Product

Absorption costing treats fixed manufacturing overhead as a ______ cost.

Product

A cost that can be traced directly to a specific segment should be charged directly to that segment and not allocated to other segments.

True

When a segment is eliminated, a ____________________________________

traceable fixed cost will disappear common fixed cost will remain unchanged

Segment margin is obtained by deducting each segment's ________

traceable fixed costs from its contribution margin

When preparing a segment margin income statement

traceable fixed expenses are deducted from contribution margin. cost of goods sold consists of only variable manufacturing costs.

Citrus Scents produces body sprays. Each bottle has a unit product cost of $5.38. This month 1,490 bottles were produced and 1,203 bottles were sold. Total cost of goods sold is Blank______.

$5.38 × 1,203 = $6,472.14

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 total Units: 10,000 produced and 6,000 sold

$50 + $75 + $27 + ($30,000 ÷ 10,000) = $155 per uni

Comfy Cozy Chairs makes rockers that require $45 of direct materials and $37 of direct labor. Variable manufacturing overhead is $8 per rocker, and fixed manufacturing overhead totals $58,000. Variable selling and administrative costs are $15 per rocker, 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

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

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. Variable selling and administrative costs are $11 per unit sold and fixed selling and administrative costs are $13,200. The unit product cost using variable costing is ______ per unit.

47

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

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

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

Absorption Costing Only

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

Increased online sales contribution margin [$100,000 × 10% × ($60,000 ÷ $100,000)] is $6,000 + $5,000 saved from stopping catalog sales = $11,000.

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

Not change

Assigning common fixed costs to segments impacts ___________

Segment margin only

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

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

higher than

A traceable fixed cost

is incurred because of the existence of the segment

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 of a store is the ______________ fixed cost of the store and the ____________ fixed cost of each product line sold in the store.

traceable Common

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 Blank______ for the individual product lines made in the plant

traceable fixed cost to the plant and a common fixed cost

The variable costing income statement separates ______

variable and fixed expenses