ACCT 2020 - Chapter 4

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

variable; absorption

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

common

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

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

Contrast the way fixed manufacturing overhead costs are treated in absorption costing versus variable costing.

Absorption costing - Fixed manufacturing overhead is treated as part of the per unit product cost and expensed as units are sold Variable costing - Fixed manufacturing overhead is treated as a period cost and expensed in full each period.

When a segment is eliminated, a:

Common fixed cost will remain unchanged Traceable fixed cost will disappear

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

FMOH

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.

FMOH

Discontinuing a profitable segment results in:

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

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

absorption

The use of ____ costing can lead to the omission of segment costs because nonmanufacturing costs are not included as costs of a product.

absorption

For external reporting, income statements are generally prepared using _____ costing, and _____ costing is used for internal decision making purposes.

absorption variable

Costs are categorized by function when using costing and by behavior when using ______ costing.

absorption; variable

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

Common mistakes made by companies when assigning costs to segments include:

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

Under absorption costing product costs consist of:

both variable and fixed manufacturing costs

A variable costing income statement:

calculates contribution margin while the absorption costing income statement calculates gross margin focuses on fixed and variable expenses, while an absorption costing income statement focuses on period and product costs

Allocating _____ fixed costs to a segment may cause an otherwise profitable segment to appear unprofitable.

common

When using variable costing, fixed manufacturing overhead is:

expenses in the period incurred

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

fixed overhead is accounted for

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

increase in total

When using absorption costing and explaining changes in operating income, financial statement users need to be aware of changes in ____ levels.

inventory

Segment break-even calculations include:

only traceable fixed expenses

Variable costing treats fixed manufacturing overhead as a(n)

period cost

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

Absorption costing treats fixed manufacturing overhead as a ______ cost.

product

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

Absorption costing is:

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

Costs that can be traced directly to a segment:

should not be allocated to other segments

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

timing of when fixed manufacturing overhead is expensed

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

Using absorption costing for segmented income statements can lead to:

under-costing of segments omission of upstream and downstream costs

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

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

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

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

The general guideline is to treat as traceable only those costs that would ______ over time if the segment was discontinued. (Enter only one word per blank.)

disappear