Chapter 6 - LearnSmart

Discontinuing a profitable segment results in:

- a reduction in the overall profits of the company - the loss of the segment's revenue

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

Net operating income is lower under absorption costing (than under variable costing) when inventory decreases because _______ manufacturing overhead deferred in previous periods is released from inventory to the ________ statement in the cost of goods sold account.

- fixed - income

Manufacturing cost per unit of a product under variable costing:

- Direct materials - Direct labor - Variable manufacturing overhead

Under absorption costing, fixed manufacturing overhead accumulates in which accounts until units of products are sold?

Inventory (on the balance sheet)

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

Fixed manufacturing overhead is treated as period cost and expensed in full each period.

Variable costing

Variable and fixed

Variable costing deducts all variable expenses from sales to determine contribution margin and all fixed expenses from contribution margin to determine income or loss.

When should a segment be discontinued? (Check all that apply.) a) When the segment margin is positive, but doesn't cover the common fixed costs b) When the segment contribution margin covers the traceable fixed costs, but doesn't cover the common fixed costs c) When the segment contribution margin doesn't cover the traceable fixed costs d) When the segment margin is negative

c) When the segment contribution margin doesn't cover the traceable fixed costs d) When the segment margin is negative

Traceable fixed cost are:

charged to the segment

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

period

Absorption costing treats fixed manufacturing overhead as a _______ cost.

product

Direct costing or marginal costing are other terms for ___________ costing.

variable

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

variable, absorption

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 Variable Costing Unit Product Cost=Direct materials + Direct Labor + Variable Manufacturing overhead = $19+$40+$9 = $68

Order of a contribution format income statement:

- Sales - Variable expenses - Contribution margin - Fixed expenses - Net operating income

When should a segment be discounted?

- When the segment contribution margin doesn't cover the traceable fixed costs - When the segment margin is negative

When a segment is eliminated, a:

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

Fixed manufacturing overhead is treated as part of the per unit product cost and expensed as units are sold.

Absorption costing

Manufacturing and selling and administrative

Absorption costing separates product (manufacturing) costs from period (selling and administrative) costs.

Fixed manufacturing overhead costs are expensed as units are sold as part of the per unit product cost under ___________ costing, but are expensed in full with the period costs under __________ costing

Absorption, variable

In variable costing, fixed manufacturing overhead costs are treated:

As a period cost and expernsed in full each period.

In absorption costing, fixed manufacturing overhead costs are treated:

As part of the per unit product cost and expensed as units are sold.