managerial accounting ch 6

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

Absorption costing can lead managers to mistakenly believe that fixed manufacturing overhead costs will ______ in total as the number of units produced increases.

increase

A traceable fixed cost ______.

is incurred because of the existence of the segment

Segmented income statements ______.

may be prepared for activities at many levels in a company

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

U.S. GAAP and IFRS ______ publicly traded companies include segmented financial data prepared for external users that use the same methods used in internal segment reports.

require

Select all that apply 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

Assigning common fixed costs to segments impacts ______.

segment margin only

Costs that can be traced directly to a segment ______.

should not be allocated to other segments

All direct labor and manufacturing overhead is treated as fixed under ______ costing.

super-variable

When calculating the profit impact of discontinuing a segment, consider _____.

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

Only costs that would disappear over time if a segment disappeared should be treated as _____ 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 variable

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

variable, absorption

Absorption costing Variable costing

Manufacturing and selling and administrative Variable and fixed Variable and 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

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

depreciation cost on the equipment used to manufacture the Corvettes

Differences in net operating income between super-variable and variable costing occur because of the treatment of ______ costs under the two methods.

direct labor

When using variable costing, fixed manufacturing overhead is ______.

expensed in the period incurred

Using variable costing and the contribution approach for internal decision making ______.

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

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

fixed manufacturing overhead

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 ______.

$11,000

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 ______.

$175,000

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

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

Which of the following is NOT a common mistake made in preparing segmented income statements?

Computing contribution margin instead of gross margin.

Which of the following costs are considered variable under super-variable costing?

Direct materials

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

False

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.

True or false: A cost that can be traced directly to a specific segment should be charged directly to that segment and not allocated to other segments.

True

True or false: Super-variable costing treats all manufacturing overhead as a fixed cost.

True

Which of the following are inventoriable costs under super-variable costing?

Variable overhead Direct materials

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

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

absorption

In order to comply with GAAP and IFRS, the ______ costing method must be used for external reporting in the United States.

absorption

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

absorption

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

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

absorption variable

Fixed manufacturing overhead costs are included as part of Work in Process inventory under ______.

absorption costing only

Under absorption costing product costs consist of ______.

both variable and fixed manufacturing costs

An otherwise profitable segment may appear to be unprofitable if _____ fixed costs are allocated to it.

common

One mistake companies make when preparing segmented income statements is arbitrarily assigning _____ fixed costs to segments.

common

When a segment is eliminated, a ______.

common fixed cost will remain unchanged traceable fixed cost will disappear

Variable costing income statements are based upon a ______ format.

contribution

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 holds managers responsible for costs they cannot control distorts the profitability of segments

Product costs under absorption costing include ______.

fixed manufacturing overhead direct labor variable manufacturing overhead direct materials

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

fixed overhead is accounted for

Contribution margin computed using super-variable costing will be ______ than the contribution margin computed using traditional variable costing.

higher than

Total fixed costs on a super-variable costing income statement will be ______ than total fixed costs on a traditional variable costing income statement.

higher than

Common mistakes made by companies when assigning costs to segments include ______.

omitting costs that should be included arbitrarily allocating common fixed costs inappropriately assigning traceable fixed costs

Segment break-even calculations include ______ fixed expenses.

only traceable

Variable costing treats ______ manufacturing costs as product costs.

only variable

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 product lines made in the plant.

traceable fixed cost to the plant and a common fixed cost

Using absorption costing for segmented income statements can lead to ______.

under-costing of segments omission of upstream and downstream costs

Absorption costing is ______.

used by most companies for both internal and external reports required by GAAP and IFRS

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