Accounting 2012

When calculating the profit impact of discontinuing a segment, consider ___

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

Incorrectly or arbitrarily assigning common costs to segments:

1. holds managers responsible for costs they can't control 2. could reduce the overall profits of the company 3. distorts the profitability of segments

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 Blank______.

11,000

Frames, Inc. picture frames each require $19 of direct materials and $40 of direct labor. Variable manufacturing overhead cost is $9 per frame and variable selling and administrative expense is $13 per frame sold. Total fixed manufacturing overhead cost per month is $15,000 and the company produces 5,000 frames each month. The unit product cost of each frame using variable costing is $

68 unit product cost of each frame using variable costing is=(Direct materials 19 + Direct labor $40 Variable manufacturing OH $9)= 68

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

7240 + 6908 + (314 * 22) = $79398

Put'er There manufactures baseball gloves that require $22 of direct materials and $18 of direct labor. Variable manufacturing overhead cost is $7 per glove 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

Unit Product Cost = Direct Materials + Direct Labor + Manufacturing Overhead Cost $22+$18+$7= $47.00

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

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

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

Under absorption costing product costs consist of Blank______ costs.

both variable and fixed manufacturing

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

common

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

common

one mistake companies make when preparing segmented income statement is arbitrarily assigning ______ fixed costs to segment

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

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 $

cost of goods sold = number of fan scale * cost per unit 842*112 = 94,304

GAAP and IFRS rules for publicly traded companies Blank______.

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

When inventory increases, absorption costing net operating income is higher than variable costing net income due to the fixed manufacturing overhead Blank______.

deferred in the inventory account on the balance sheet

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

depreciation on equipment used to manufacture Corvettes

Differences in net operating income between super-variable and variable costing occur because of the treatment of Blank______ costs under the two methods.

dl

Under variable costing the cost of a unit of inventory does not contain____

fixed manufacturing overhead

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

fixed moh

Contribution margin computed using super-variable costing will be Blank______ than the contribution margin computed using traditional variable costing.

higher than

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

A traceable fixed cost ______.

is incurred because of the existence of the segment

The segment margin represents the Blank______.

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

Segmented income statements Blank______.

may be prepared for activities at many levels in a company

If a segment is entirely eliminated, common fixed costs will Blank______.

not change

Segment break-even calculations include Blank______ fixed expenses. Multiple choice question.

only traceable

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 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 Blank______ cost.

product

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

require

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 Blank______.

segment margin only

Costs that can be traced directly to a segment ________-

should not be allocated to other segments

The difference in net operating income between absorption costing and variable costing is due to the ___________-

time when fixed 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 of a store is the ______fixed cost of the store and the ________

traceable common

When allocating fixed manufacturing overhead cost to units under absorption costing, the total fixed overhead costs must be divided by the number of units

variable

Variable costing income statements separate_____ expenses from _________expenses.

variable and fixed

The variable costing income statement separates Blank______.

variable and fixed expenses

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

variable costing and absorption costing

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

Common mistakes made by companies when assigning costs to segments include Blank______.

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

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

Place the following line items in order to construct a contribution format income statement.

+Sales -variable costs =contribution Margin -Fixed expenses =net operating income

Why is CVP analysis more difficult when using absorption costing than when using variable costing?

CVP analysis requires costs to be broken down between variable and fixed which is not done in absorption costing.

Which of the following is NOT a common mistake made in preparing segmented income statements?

Computing contribution margin instead of gross margin.

Differences in net operating income between super-variable and variable costing occur because of the treatment of Blank______ costs under the two methods.

D L

Which of the following costs are considered variable under super-variable costing?

DM

Which of the following are NOT inventoriable costs under super-variable costing?

Fixed overhead Direct labor

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

Total Variable Cost = 780 quilts sold (Variable MOH $140+ Administrive Cost $19) = $124,020

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

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

traceable fixed costs

Segment margin is obtained by deducting each segment's ______.

traceable fixed costs from its contribution margin

The segment margin equals the segment's contribution margin less the segment's _____ fixed costs

traceable or direct

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

Super-variable costing treats all manufacturing overhead as a fixed cost.

true

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

variable

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 _____.

Untit Product Cost * Units Sold = Total cost of goods $5.38 * 1,203 = $6472.14