ACC 202 Ch 7

What is correct regarding income statements under variable and absorption costing?

-reported net income differs on statements -both income statements include product and period costs

When a segment is eliminated, a

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

When a segment is eliminated, a:

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

one mistake companies make when preparing segmented income statements is arbitrarily assigning __________ fixed costs to segments

common

variable costing income statements are based on a

contribution margin format

When fixed costs are put on a per unit basis, it appears that the total cost will

increase as the number of units increase

segment margin is most useful for making

major capacity decisions

When inventory decreases, cost of goods sold under absorption costing will generally be ______ cost of goods sold under variable costing

more than

segment break even calculations include

only traceable fixed expenses

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

only when the allocation base actually drives the costs being allocated

The segment margin represents

the margin available after a segment has covered all of its own costs

Product costs under absorption costing include

variable MOH Fixed MOH direct materials direct labor

Fixed manufacturing overhead costs expensed in full with period costs under

variable costing

direct costing or marginal costing are other terms for

variable costing

When preparing a segment margin income statement

-COGS consists of only variable manufacturing costs -variable and fixed costs are listed in separate sections of the statement

A traceable cost

-is incurred because of the existence of the segment -supports the operations of more than one segments

Why is CVP analysis more difficult when using absorption costing than when using variable costing?

CVP analysis requires costs to be broken down between variable and fixed, which is not done in absorption costing

When inventory increases, which costing method generally results in higher net income?

absorption costing

When using variable costing, fixed manufacturing overhead is

expensed in the period incurred

a common costs supports

the operations of more than one segment and is not traceable in whole or part to any one segment

Dollar break even for a company is calculated by

(traceable fixed expenses + common fixed expenses) / overall CM ratio

Advocates of variable costing believe fixed manufacturing costs:

-are period costs -are not caused by and cannnot be meaningfully traced to specific units of production

An absorption costing income statement calculates

Gross margin by deducting cost of goods sold from sales

Variable costing treats MOH as

a period cost

Advocates of ____ costing believe fixed costs are an essential part of product production.

absorption costing

Fixed manufacturing overhead costs are expensed units are sold as part of cost of good sold under

absorption costing

selling and administrative expenses

are always treated as period costs

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 traceable fixed costs for GM Corvette Division is the

depreciation costs n the equipment used to manufacture the cars

Under variable costing, product costs equals

direct materials + direct labor + variable MOH

Under absorption costing, product costs equal

direct materials + direct labor + variable MOH + (fixed MOH/units produced)

The company wide break even sales will always be ___ the sum of the segment break-even sales

higher than

variable costing treats fixed manufacturing overhead as a

period costs

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

segment

A segments margin is obtained by deducting the traceable fixed costs of a segment for the

segments contribution margin

contribution margin is most used for

short term sales volume decisions

The segment margin equals the segments contribution margin less the segments

traceable fixed costs

break even point in dollar sales =

traceable fixed expenses / contribution margin ratio

On an absorption costing income statement, selling and administrative expenses

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

A segment should b discontinued when the segment

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

A company with three segments has 10k in common fixed expenses. All three segments are the the break even point. As a result, the company

-has an overall net operating loss of 10k

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

Using abortion costing for segmented income statements can lead to

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

absorption costing is

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

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 reporting -create problems reconciling internal and external reports

abortion costing treats fixed manufacturing overhead as a

product cost