ACTG 211: Chapter 6

Which of the following statements are correct regarding income statements prepared under variable and absorption costing?

-Reported net income on the statements often differ. -Both income statements include product and period costs.

On an absorption costing income statement, selling and administrative expenses ______.

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

A part or activity within an organization about which managers would like cost, revenue or profit data is called a(n) _____________.

segment

An absorption costing income statement calculates ______.

gross margin by deducting cost of goods sold from sales

A traceable fixed cost ______.

is incurred because of the existence of the segment

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

gross margin(gross profit)

Absorption and variable costing net income are usually different due to the accounting for ___________.

fixed manufacturing overhead

The difference between reported net income on variable costing and absorption costing income statements is based on how ______.

fixed overhead is accounted for

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

When using absorption costing, fixed manufacturing overhead cost per unit = Total fixed manufacturing overhead divided by units ______.

produced

The segment margin is a valuable tool for assessing the long-run ______ of a segment.

profitability

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's operations can be divided by product lines, geographical area, manufacturing plants, service centers or sales territories, which are known as __________________________.

segments

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.

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

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 ______.

$101,000

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 ______.

$11,834.25

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 ______.

$119

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.

$47

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.

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

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 ______.

$5,763.15

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 ______.

$6,472.14

Product costs under absorption costing include ______.

-direct labor -fixed manufacturing overhead -direct materials -variable manufacturing overhead

A segment should be discontinued when the segment ______.

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

When a segment is eliminated, a ______.

-traceable fixed cost will disappear -common fixed cost will remain unchanged

order of Income Statement

1. Sales 2. Variable expenses 3. Contribution margin 4. Fixed expenses 5. Net operating income

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

28,990

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 $___________

68

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 $________________

68

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

False

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 Reason: This is the formula for variable, not absorption costing net income.

True or false: Absorption costing and variable costing always result in the same net operating income each year.

False Reason: Absorption costing and variable costing will only produce the same amount of net operating income when the number of units produced is equal to the number of units sold.

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

For external reporting, income statements are generally prepared using ______________costing, while __________________costing is used for internal decision making purposes.

absorption variable

Match the costing method with the way costs are separated for the method.

absorption ----------> Manufacturing and selling and administrative variable -------->Variable and fixed

Selling and administrative expenses ______.

are always treated as period costs

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

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

common

Variable costing income statements are based upon a ______ format.

contribution margin

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

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 Reason: This occurs when inventory decreases and absorption costing net income is lower than variable costing net income.

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

depreciation cost on the equipment used to manufacture the Corvettes

Under both variable costing and absorption costing, variable and fixed selling and administrative costs are treated as ______ costs.

period

Variable costing treats fixed manufacturing overhead as a(n) ________________cost.

period

When a segment cannot cover its own costs, that segment should ______.

probably be dropped

The absorption costing income statement separates ______.

product and period costs

Selling and administrative expenses are ______ on both the absorption and variable costing income statements.

the same amount (not reported the same. Variable costing separates fixed and variable expenses while Absorption costing combines the two instead separating product/period)

Differences in net operating income between absorption costing and variable costing is due to the ______.

timing of when fixed manufacturing overhead is expensed

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

traceable

True or false: Under absorption costing, fixed overhead is treated like a variable cost because a portion of the total cost is allocated to each unit produced, rather than being expensed as one large sum.

true Reason: Although fixed manufacturing overhead is a fixed cost, absorption costing treats it as though it were a variable cost by allocating the fixed costs to units of product (just like variable product costs.)

Direct costing or marginal costing are other terms for ______________________costing.

variable

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 ______.

$119 Reason: $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.

$155

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 $___________

17,483

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 $___________.

20376

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 $____________________

28,990

The two general costing approaches used by manufacturing companies to prepare income statements are ______________costing and ______________costing.

variable absorption

Variable costing income statements separate __________________expenses from expenses______________________.

variable fixed

The variable costing income statement separates ______.

variable and fixed expenses

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 ______.

$124,020

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 $________________

79,398

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 $___________

79398

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 $____________________

94,304

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

variable, absorption