Accounting Exam 2: Chapter 4

Since the variable costs per unit, total fixed costs, and the number of units produced remained unchanged, the unit cost computations ______ ________.

Remain unchanged

variable costing v absorption costing

The two general costing approaches used by manufacturing companies to prepare income statements. absorption= absorb all manufacturing costs

Under ______ costing, all production costs, variable and fixed, are included when determining _____ product cost. Under _______ costing, only the variable production costs are included in ______ costs.

absorption...unit.....variable.....product

Omission of Costs are costs assigned to a segment that should include _______ _______ attributable to that segment from the company's entire value chain.

all costs

In a Variable Costing Contribution Format Income Statement all _____ manufacturing overhead is expensed.

fixed

Common fixed costs arise because of?

of the overall operation of the company and would not disappear if any particular segment were eliminated. aka: organization sustaining cost

common costs don't allocate common costs to _______.

segments

fixed costs that are traceable to one segment can become common if the company is divided into _____ segments

smaller

The segment margin, which is computed by:

subtracting the traceable fixed costs of a segment from its contribution margin. - is the best gauge of the long-run profitability of a segment.

Contribution margin is computed by

taking sales minus variable costs

Common costs should not be allocated to?

the divisions

Variable costing correctly identifies the additional ______ costs incurred to make one more unit. It also emphasizes the impact of total ________ costs on profits.

variable......fixed

How much of the common fixed expense of $200,000 can be avoided by eliminating the bar? a. None of it. b. Some of it. c. All of it.

- none of it A common fixed expenses cannot be eliminated by dropping one of the segments.

two keys to building segmented income statements

1. A contribution format should be used because it separates fixed from variable costs and it enables the calculation of a contribution margin 2. Traceable fixed costs should be separated from common fixed costs to enable the calculation of a segment margin.

Common costs should not be arbitrarily allocated to segments based on the rationale that "someone has to cover the common costs" for two reasons:

1.This practice may make a profitable business segment appear to be unprofitable. 2.Allocating common fixed costs forces managers to be held accountable for costs they cannot control.

Suppose square feet is used as the basis for allocating the common fixed expense of $200,000. How much would be allocated to the bar if the bar occupies 1,000 square feet and the restaurant 9,000 square feet? a. $20,000 b. $30,000 c. $40,000 d. $50,000

20,000 The bar would be allocated 1/10 of the cost or $20,000.

Which method will produce the highest values for work in process and finished goods inventories? a. Absorption costing. b. Variable costing. c. They produce the same values for these inventories. d. It depends...

Absorption costing

________ fixed costs arise because of the existence of a particular segment and would disappear over time if the segment itself disappeared.

Traceable

Variable costing income is only affected by

changes in unit sales. It is not affected by the number of units produced.

A segment is any part or activity of an organization about which a manager seeks:

cost, revenue, or profit data

Once a company prepares contribution format segmented income statements, it can use those statements to make

decisions and perform break-even analysis

As a general rule for variable costing, when sales go up, net operating income ________, and vice versa.

goes up

Absorption costing income is influenced by changes: Net operating income can be increased simply by producing more ______ even if those units are not sold.

in unit sales and units of production. units

Since absorption costing is required for external reporting, most companies also use it for ______ reports rather than incurring the additional cost of maintaining a separate variable cost system for ______ (same as the first blank) reporting.

internal

The companywide break-even point is computed by dividing the sum of the company's

traceable fixed expenses and common fixed expenses by the company's overall contribution margin ratio.

A business segment's break-even point is computed by dividing its ________.

traceable fixed expenses by its contribution margin ratio.

The cost of goods sold consists of ______ manufacturing costs.

variable

Variable costing categorizes costs as ________ and ______ so it is much easier to use this income statement format for CVP analysis.

variable and fixed