ACCT 2020 - Chapter 4
The two general costing approaches used by manufacturing companies to prepare income statements are _______ costing and _______ costing
variable; absorption
One mistake companies make when preparing segmented income statements is arbitrarily assigning ______ fixed costs to segments.
common
When inventory increases, absorption costing net operating income is higher than variable costing net income due to the fixed manufacturing overhead:
deferred in the inventory account on the balance sheet
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 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
Contrast the way fixed manufacturing overhead costs are treated in absorption costing versus variable costing.
Absorption costing - Fixed manufacturing overhead is treated as part of the per unit product cost and expensed as units are sold Variable costing - Fixed manufacturing overhead is treated as a period cost and expensed in full each period.
When a segment is eliminated, a:
Common fixed cost will remain unchanged Traceable fixed cost will disappear
Absorption and variable costing net income are usually different due to the accounting for:
FMOH
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.
FMOH
Discontinuing a profitable segment results in:
a reduction in the overall profits of the company the loss of the segment's revenues
In order to comply with GAAP and IFRS, the ______ costing method must be used for external reporting in the United States.
absorption
The use of ____ costing can lead to the omission of segment costs because nonmanufacturing costs are not included as costs of a product.
absorption
For external reporting, income statements are generally prepared using _____ costing, and _____ costing is used for internal decision making purposes.
absorption variable
Costs are categorized by function when using costing and by behavior when using ______ costing.
absorption; variable
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
Common mistakes made by companies when assigning costs to segments include:
arbitrarily allocating common fixed costs omitting costs that should be included inappropriately assigning traceable fixed costs
Under absorption costing product costs consist of:
both variable and fixed manufacturing costs
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
Allocating _____ fixed costs to a segment may cause an otherwise profitable segment to appear unprofitable.
common
When using variable costing, fixed manufacturing overhead is:
expenses in the period incurred
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 ______ as the number of units produced increases.
increase in total
When using absorption costing and explaining changes in operating income, financial statement users need to be aware of changes in ____ levels.
inventory
Segment break-even calculations include:
only traceable fixed expenses
Variable costing treats fixed manufacturing overhead as a(n)
period cost
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
Absorption costing treats fixed manufacturing overhead as a ______ cost.
product
GAAP and IFRS rules:
require segmented financial data be included in annual reports require that the same method be used for both internal and external segment reporting 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
Costs that can be traced directly to a segment:
should not be allocated to other segments
Differences in net operating income between absorption costing and variable costing is due to the:
timing of when fixed manufacturing 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 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
Using absorption costing for segmented income statements can lead to:
under-costing of segments omission of upstream and downstream costs
When preparing a contribution margin income statement:
cost of goods sold consists of only variable manufacturing costs variable and fixed costs are listed in separate sections of the statement
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.
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
The general guideline is to treat as traceable only those costs that would ______ over time if the segment was discontinued. (Enter only one word per blank.)
disappear