ACCT 2210 Exam 2
Contribution margin ___
becomes profit after fixed expenses are covered
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
If the total contribution margin is less than the total fixed expenses, a ___ occurs
net loss
If a segment is entirely eliminated, common fixed costs will ___
not change
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 calculating the profit impact of discontinuing a segment, consider ___
the segment's contribution margin and traceable fixed costs
Only costs that would disappear over time if a segment disappeared should be treated as ___ fixed costs
traceable
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
Once the break-even point is reached, the sale of an additional unit increases contribution margin by an amount that is ___ the increase in net operating income
equal to
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
Contribution margin is first used to cover ___ expenses. Once the break-even point has been reached, contribution margin becomes ___
fixed; profit
A segment should probably be dropped when the segment ___
has a contribution margin that cannot cover traceable fixed costs; cannot cover its own costs
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
When units sold exceed units produced, net income under variable costing will generally be ___ net income under absorption costing
higher than
Absorption costing can lead managers to mistakenly believe that fixed manufacturing overhead costs will ___ in total as the number of units produced increases
increase
The contribution margin statement is primarily used for ___
internal decision making
Segmented income statements ___
may be prepared for activities at many levels in a company
Segment break-even calculations include ___ fixed expenses
only traceable
Costs should be allocated to segments for internal decision-making purposes ___
only when the allocation base actually drives the cost being allocated
GAAP and IFRS rules ___
require that the same method be used for both internal and external segment reporting; create problems in reconciling internal and external reports; require segmented financial data be included in annual 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
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
When there is no change in inventory, net operating income will be ___ costing
the same under both absorption and variable
The break-even point is reached when the contribution margin is equal to ___
total fixed expenses
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
The segment margin is obtained by deducting the ___ fixed costs of a segment from the segment's ___
traceable; contribution margin
Using absorption costing for segmented income statements can lead to___
under-costing of segments; omission of upstream and downstream
When preparing a segment margin income statement ___
cost of goods sold consists of only variable manufacturing costs; traceable fixed expenses are deducted from contribution margin
Incorrectly or arbitrarily assigning common costs to segments ___
could reduce the overall profits of the company; distorts the profitability of segments; holds managers responsible for costs they cannot control
The company-wide break-even sales will always be ___ the sum of the segment break-even sales
higher than
Segment margin is most useful in decisions involving short-run changes in sales volume such as pricing special orders (T or F)
False
Which of the following are assumptions of cost-volume-profit analysis?
in multi product companies, the sales mix is constant; costs are linear and can be accurately divided into variable and fixed elements
Common mistakes made by companies when assigning costs to segments include ___
inappropriately assigning traceable fixed costs; arbitrarily allocating common fixed costs; omitting costs that should be included
A cost that can be traced directly to a specific segment should be charged directly to that segment and not allocated to other segments (T or F)
True
Discontinuing a profitable segment results in ___
a reduction in the overall profits of the company; the loss of the segment's revenues
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
Dollar break-even for a company is calculated as ___
(traceable fixed expenses + common fixed expenses) / overall cm ratio
Advocates of variable costing believe fixed manufacturing costs ___
are not caused by and cannot be meaningfully traced to specific units of production; are period expenses
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) ___ fixed cost
common
When a segment is eliminated, a ___
common fixed cost will remain unchanged; traceable fixed cost will disappear
An example of a traceable fixed cost for General Motors' Corvette Division is the ___
depreciation cost on the equipment used to manufacture the Corvettes