ACCT 202 - Chapter 6

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

Common

Variable costing net income may be computed by multiplying the number of units sold by the _____________ __________________ per unit and subtracting total ________________ expenses.

Contribution margin; fixed

True or False: Absorption costing net income may be computed by multiplying the number of units sold by the contribution margin per unit and subtracting total fixed expenses.

False

True or false: Segment margin is most useful in decisions involving short-run changes in sales volume such as pricing special orders. True False

False

Absorption costing net income is calculated by subtracting selling and administrative expenses from ________________ _____________________ .

Gross margin

When a segment cannot cover its own costs, that segment should ______. recalculate its segment margin without including common fixed costs probably be dropped be combined with another profitable segment

probably be dropped

When using absorption costing, fixed manufacturing overhead cost per unit = Total fixed manufacturing overhead divided by units ______. in ending inventory (produced - units sold) produced sold

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 ______.

$5.38 × 1,203 = $6,472.14

Net income computed under ______ costing may not agree with the results of CVP analysis. direct variable marginal absorption

absorption

Select all that apply A segment should probably be dropped when the segment ______. has a positive segment margin but cannot cover any common fixed costs cannot cover its own costs has important side effects on other segments has a contribution margin that cannot cover traceable fixed costs

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

Select all that apply When preparing a segment margin income statement ______. common fixed expenses are excluded from the statement cost of goods sold consists of only variable manufacturing costs fixed manufacturing costs are included in cost of goods sold traceable fixed expenses are deducted from contribution margin

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

An example of a traceable fixed cost for General Motors' Corvette Division is the ______. utilities cost of the General Motors corporate headquarters salary of the General Motors Chief Executive Officer direct materials used in the production of the Corvettes depreciation cost on the equipment used to manufacture the Corvettes

depreciation cost on the equipment used to manufacture the Corvettes

Select all that apply On an absorption costing income statement, selling and administrative expenses ______. equal the amounts reported on a variable costing income statement are reported as a single amount are separated into fixed and variable components are reported exactly the same way as on a variable costing income statement

equal the amounts reported on a variable costing income statement are reported as a single amount

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 $ ________________.

$112 x 842 = $94,304

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 $ _____________ as the total fixed expenses.

$19,700 + $9,290 = $28,990

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

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 ______ per unit. $81.75 $47 $70.75 $58

$22 + $18 + $7 = $47. Selling and administrative costs are never considered part of product cost.

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 ______. $671,096 $708,768 $59,000 $101,000

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

Comfy Cozy Chairs makes and sells rockers. Each rocker requires $45 of direct materials and $37 of direct labor. Variable manufacturing overhead is $8 per unit, and fixed manufacturing overhead totals $58,000. Variable selling and administrative costs are $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 ______. $90 $105 $119 $125

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

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. $157 $128 $155 $152

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

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 ______. $116,667 $175,000 $250,000 $212,500

$70,000 ÷ 40% = $175,000

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 $ ___________________.

$74,490 + ($22 x 314) = $79,398

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 ______. $3,435.75 $11,834.25 $231.35 $15,270.00

$76.35 × 155 = $11,834.25

Citrus Scents produces body sprays. Variable selling and administrative expense is $1.05 per bottle and fixed selling and administrative expense is $4,500 per month. The company produced 1,490 bottles this month, and sold 1,203 of those bottles. Total selling and administrative expense for the month was ______. $4,500.00 $5,763.15 $6,064.50 $1,564.50

($1.05 × 1,203) + $4,500 = $5,763.15

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

Dollar break-even for a company is calculated as ______. Common fixed expenses ÷ Overall CM ratio (Traceable fixed expenses - Common fixed expenses) ÷ Overall CM ratio (Traceable fixed expenses + Common fixed expenses) ÷ Overall CM ratio Traceable fixed expenses ÷ Overall CM ratio

(Traceable fixed expenses + Common fixed expenses) ÷ Overall CM ratio

Blissful Breeze manufactures and sells ceiling fans. Variable selling and administrative expense is $11.50 per fan and fixed selling and administrative expense is $7,800 per month. If Blissful Breeze produces 900 fans and sells 842 fans this month, total selling and administrative expenses will be $ ____________.

842 x $11.50 = $9683 $9683 + $7800 = $17483

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

Absorption

When inventory increases, which costing method generally results in higher net income? The two costing methods would show the same net income Absorption costing Variable costing

Absorption costing

Costs are categorized by function when using _____________________ costing and by behavior when using ____________________ costing.

Absorption; variable

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 ______. $6,000 $11,000 $5,000 $9,000

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

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

Place the following line items in order to construct a contribution format income statement. Fixed expenses, contribution margin, net operating income, sales, variable costs

Sales - variable costs = contribution margin - fixed expenses = net operating income

From a decision making point of view, ___________ margin is most useful for major capacity decisions and ________________ margin is most useful for short-term sales volume decisions.

Segment; contribution

A company has two segments with total sales of $500,000 and total variable costs of $343,750. Traceable fixed expenses are $50,000 and common fixed expenses are $80,000. The break even in dollars for the company as a whole equals $ ____________________.

Total fixed expenses = Traceable fixed expenses + Common fixed expenses = $50,000 + $80,000 = $130,000 Contribution margin ratio = (Sales - Variable costs) / Sales * 100 = ($500,000 - $343,750) / $500,000 * 100 = 31.25% Break-eve dollars = Fixed expenses / Contribution margin ratio = $130,000 / 31.25% = $416,000

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

Traceable

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

Traceable

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

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

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 $_________.

Variable Costing Unit Product Cost = Direct Materials + Direct Labor + Variable Manufacturing Overhead =$19 + $40 + $9 =68

Select all that apply Using variable costing and the contribution approach for internal decision making ______. facilitates explaining changes in net income supports decision making enables CVP analysis is required as part of GAAP financial statements

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

An absorption costing income statement calculates ______. net income by deducting fixed costs from contribution margin gross margin by deducting cost of goods sold from sales net income by deducting selling and administrative costs from contribution margin contribution margin by deducting variable costs from sales

gross margin by deducting cost of goods sold from sales

Net operating income under absorption costing is generally ______ net operating income under variable costing in periods in which inventory increases. less than higher than equal to

higher than

When units sold exceed units produced, net income under variable costing will generally be _______ net income under absorption costing. equal to lower than higher than

higher than

A traceable fixed cost ______. will continue if the segment is discontinued is incurred because of the existence of the segment varies with the activity level in a particular segment supports the operations of more than one segment

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 margin available to cover fixed costs margin remaining after traceable and common fixed costs have been deducted excess of the segment revenue over the segment cost of goods sold

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

Segmented income statements ______. should only be used for profit centers may be prepared for activities at many levels in a company are best used to determine which locations are profitable, rather than which product lines are profitable may be prepared for the various departments in the company, but not for specific product lines

may be prepared for activities at many levels in a company

When inventory decreases, cost of goods sold under absorption costing will generally be ______ cost of goods sold under variable costing. equal to more than less than

more than

If a segment is entirely eliminated, common fixed costs will ______. decrease not change be eliminated

not change

Segment break-even calculations include ______ fixed expenses. only common both traceable and common only traceable

only traceable

Assigning common fixed costs to segments impacts ______. neither segment margin nor total corporate profit both segment margin and total corporate profit segment margin only total corporate profit only

segment margin only

Select all that apply Absorption costing and variable costing net operating income will be equal when ______. the change in beginning inventory is greater than the change in ending inventory the number of units produced equals the number of units sold there is no beginning and no ending inventory there is a change in ending, but not beginning, inventory

the number of units produced equals the number of units sold there is no beginning and no ending inventory

Selling and administrative expenses are ______ on both the absorption and variable costing income statements. reported the same way the same amount the same amount and reported the same way

the same amount

When there is no change in inventory, net operating income will be ______ costing. the same under both absorption and variable higher under variable than under absorption higher under absorption than under variable

the same under both absorption and variable

Select all that apply When calculating the profit impact of discontinuing a segment, consider _____. the segment's contribution margin common costs allocated to the segment the segment's traceable fixed costs

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

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 ______ for the individual. traceable fixed cost for both the plant and traceable fixed cost to the plant and a common fixed cost common fixed cost for the plant and a traceable fixed cost common fixed cost for both the plant and

traceable fixed cost to the plant and a common fixed cost

Select all that apply When a segment is eliminated, a ______. traceable fixed cost will remain unchanged traceable fixed cost will disappear common fixed cost will remain unchanged common fixed cost will disappear

traceable fixed cost will disappear common fixed cost will remain unchanged

The variable costing income statement separates ______. variable and fixed expenses selling and administrative expenses product and period costs direct and indirect expenses

variable and fixed expenses

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

variable, absorption