study

Costs that can be traced directly to a segment:

should not be allocated to other segments

-omission of upstream and downstream costs -under-costing of segments

using absorption costing for segmented income statements can lead to:

absorption; variable

For external reporting purposes, manufacturing companies generally prepare ___ costing income statements, but ____ costing is often used for internal reporting purposes.

Blank 1: segment Blank 2: contribution

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

2,800 [98,000 / (50-15)]

JVL enterprises has set a target profit of $126,000. The company sells a single product for $50 per unit. Variable costs are $15 per unit and fixed costs total $98,000. How many units does JVL have to sell to break-even?

Variable costing and Absorption costing:

The two general costing approaches used by manufacturing companies to prepare income statements

contribution margin

To calculate the degree of operating leverage, divide _____ _____ by net operating income.

True

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.

False

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

Fixed manu overhead

Under variable costing, the cost of a unit of inventory does NOT contain

c. omission of upstream and downstream costs d. under-costing of segments

Using absorption costing for segmented income statements can lead to:(Select all that apply) a. the need to maintain two costing systems b. inconsistencies between internal and external reports c. omission of upstream and downstream costs d. under-costing of segments

Common fixed cost will remain unchanged; Traceable fixed cost will disappear

When a segment is eliminated, a:

dollars

When constructing a CVP graph, the vertical axis represents ______

- change in sales dollars resulting specifically from the decision- change in cost resulting specifically from the decision

When making a decision using incremental analysis consider the ______

cost of goods sold consists of only variable manufacturing coststraceable fixed expenses are deducted from contribution margin

When preparing a segment margin income statement ______.

net operating income

operating leverage is a measure of how sensitive ___ is to given percentage change in sales dollars

traceable; common

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 _______ fixed cost for the store, and a _______ fixed cost for each product line sold in the store.

$180,000(20,000 × ($20 - $11) = $180,000)

A company sold 20,000 units of its product for $20 each. Variable cost per unit is $11. Fixed expenses total $150,000. The company's contribution margin is ______

segments

A company's operations can be divided by product lines, geographic areas, manufacturing plants, service centers, or sales territories, which are known as:

8,400 (sales volume = [$320,000 +$200,800]/[$90-$28] = 8,400 units)

A company's selling price is $90 per unit, variable cost per unit is $28 and total fixed expenses are $320,000. The number of unit sales needed to earn a target profit of $200,800 is?

segment

A part or activity of an organization about which managers would like cost, revenue, or profit data.

c. is incurred because of the existence of the segment

A traceable fixed cost: a. supports the operations of more than one segment b. would continue if the segment were discontinued c. is incurred because of the existence of the segment d. varies with he activity level in a particular segment

product

Absorption costing treats fixed manufacturing overhead as a ______ cost.

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

Computing contribution margin instead of gross margin

becomes profit after fixed expenses are covered

Contribution margin ______

contribution margin; sales/revenue

Contribution margin ratio is equal to ___ ___ divided by ___

only when the allocation base actually drives the cost being allocated

Costs should be allocated to segments for internal decision-making purposes:

Variable

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

Profits = $875[35 X ($55 - $10) - $700]Total Sales = $1,925[35 X $55]Total Variable Costs = $350[35 X $10]

Elle's Elephant Shop sells giant stuffed elephants for $55 each. Elle incurs $10 of variable costs for each elephant and a total of $700 fixed costs. Assuming Elle will sell 35 elephants this month, which of the following statements are true?

DL DM Fixed Manu. Overhead Variable Manu. Overhead

Product costs under absorption costing are:

variable; fixed

Profit = (selling price per unit x quantity sold) - (________ expense per unit x quantity sold) - _________expenses.

21,645 [sales volume= (470,000 + 222,640) / 32]

Run Like the Wing sells ceiling fans. Target profit for the year is $470,000. If each fan's contribution margin is $32 and fixed costs totals $222,640, the number of fans required to meet the company's goal is...

Variable

Segment contribution margin equals segment revenue minus the _________ expenses for the segment.

margin of safety

The amount by which sales can drop before losses are incurred is the _____ of _____.

fixed overhead

The difference between how reported net income on variable costing and absorption costing income statements is based on how ______________________________ (2 words) is accounted for

profitably

The segment margin is a valuable tool for assessing the long run ____________________ of a segment

is more likely to experience greater profits when sales are up than a company with mostly variable costs, is more likely to experience a loss when sales are down than a company with mostly variable costs

a company with a high ratio of fixed costs

leverage

a measure of how sensitive net operating income is to given percentage in sales dollars is known as operating ___

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

a segment should be discontinued when the segment:

40,000= (520,000+320,000)/21

blissful blankets hopes to achieve a profit this year of $520,000. Each blanket has a contribution margin of $21. Fixed costs for the company are $320,000. How many blankets does blissful blankets need to sell in order to achieve its target profit?

A, B, D

common mistakes made by companies when assigning costs to segments include (check all that apply): a. arbitrarily allocating common fixed costs b. inappropriately assigning traceable fixed costs c. inappropriately allocating variable costs d. omitting costs that should be included

a, c, d

incorrectly or arbitrarily assigning common costs to segments: (check all that apply): a. holds managers responsible for costs they cannot control b. ensures all common costs will be covered c. reduces overall profits of the company d. distorts the profitability of segments e. causes company net income to be reported incorrectly

Costs should be allocated to segments for internal decision-making purposes:

only when the allocation base drives the cost being allocated

CM/ net operating income

the degree of operating leverage=

Discontinuing a profitable segment results in:

the loss of segment's revenues &a reduction in the overall profits of the company

false

true of false: the margin of safety is the excess of break even sales dollars over budgeted (or actual) sales dollars

false

true or false: cost structure refers to the relative portion of product and period costs in an organization

traceable fixed cost to the plant and a common fixed cost

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.

segment margin only

Assigning common fixed costs to segments impacts ______

decrease (Sales - variable cost = contribution margin so an increase in variable cost per unit decreases contribution margin per unit )

Assuming sales price remains constant, an increase in the variable cost per unit will ______ the contribution margin per unit

- total revenue equals total cost - net operating income is zero

At the break-even point ______

sales

The variable expense ratio is the ratio of variable expense to ______