Acct ch 6

In the contribution approach costs ar categorized according to __________

how they behave

What problems can misinterpreting absorption unit product costs can lead to

inappropriate pricing decisions and decisions to drop products that are in fact profitable

the key different between absorption and variable costing is the treatment of _________

fixed manufacturing overhead

Absorption costing income statement categorizes costs by _________ versus selling and administrative

function-manufacturing

The variable costing net operating income for each period can always be computed by multiplying the _________ by the ____________ and then subtracting ____________.

number of units sold; by the contribution margin per unit ; and total fixed costs

What happens when common costs are allocated to segments?

reduces the value of the segments margin as a measure of long-run segment profitability and segment performance.

upstream

research and development and product design

the _____ is the best guage of the long-run profitability of a segment because it includes only those costs that are cause by a ______. this is also used to determine if a ______ should be dropped or kept.

segment margin ; segment

The distinction between traceable and common fixed costs....

traceable fixed costs are charged to segments and common fixed costs are not.

If either __________ or ______________ costs are omitted in profitability analysis, then the product is ______________ and management may unwittingly develop and maintain products that in the long run result in losses.

upstream, downstream under costed

To prepare a segmented income statement, ________ expenses are deducted from sales to yeild the _______ for the segment. the _______ tells us what happens to profits as _____ changes

variable ; contribution margin ; volume

Only manufacturing costs that vary with output are treated as product costs.

variable costing

Under ___________, fixed manufacturing overhead is treated as a period expense, rather then ___________ that includes MFOH in the product expense.

variable costing; absorption costing

under variable costing, product costs consist solely of _________

variable product costs

common fixed cost

A fixed cost that supports more than one business segment, but is not traceable in whole or in part to any one of the business segments

traceable fixed costs

a fixed cost that is incurred because of the existence of a particular business segment and that would be eliminated if the segment were eliminated

______ treats all manufacturing costs as product costs regardless of whether they are variable of fixed

absorption costing

to avoid having to maintain two costing systems and to provide consistency between internal and external reports, many companies also use _________ for their internal reports such as segmented INCOME STATEMENTS

absorption costing

Under the ________ cost method, unsold units are capitalized to inventories instead of being ____________

absorption; expensed on the income statement

downstream

distribution marketing customer service

If inventories ______during a period, under absorption costing some of the fixed MFOH of the current period will be ____- in ending inventories

increase ; deferred

if inventories ________, fixed mFOH costs are deferred in _________, which in turn ________ net income

increase, inventories, increase

costs should be allocated to segments for _____________ purposes only when the allocation base actually _____ the cost being allocated.

internal decision making ; drives

US GAAP and IFRS require that publicly traded companies use the same definitions and reports that are prepared to aid in operatings decision making for both ________ and __________ repprts

internal external

Under absorption costing ner op income can be distorted by changes in _______

inventories

Absorption costing is also attractive to many accountants because they believe...

it better matches costs with revenues.

When units produced exceed units sold....... because?

net operating income will be higher under the absorption method then the variable method because some of fixed MFOH is deferred into inventories instead of included on the income statement.

selling and admin expenses are ______ treated as product costs, regardless of method.

never

when units produced = units sold

no change in inventories and costing method does not matter because they will have same results

What steps would one take to determine the profit impact of discontinuing a segments?

1. calculate profit impact of the segments 2. calculate the impact of improving other segments by multiplying the contribution margin by the increase of sales of the improving segment.

Four advantages the variable costing method has with the contribution approach :

1. enabling cvp analysis 2. explaining changes in net operating income 3. supports decision making 4. adapting to theory of constraints

Three reasons theory of contraints treats direct labor costs as fixed costs

1. even though direct labor workers are paid on an hourly basis some companies have contracts that guarantee workers a minimum number of paid hours. 2. direct labor is not usually a constraint 3. TOC emphasizes continuous improvement to maintain competitiveness

two reasons why companies don't correctly assign traceable costs among segments

1. the dont trace fixed expenses to segments even when its easy to do so. 2. they use inappropriate allocation bases to allocate traceable fixed expenses to segments

the costs assigned to a segments should include

all costs attributable to that segments from the company's entire value chain.

the practice of ________________ is often justified on the grounds that "someone has to cover the common costs"

arbitrarily (random choice or personal whim) allocating common costs to segments

CVP analysis says we must

break costs down into their fixed and variable components., The study of how costs and profits change in response to changes in the volume of goods and services provided to customers.

when unit sales exceed units produced inventories......and net opp income is lower under _________ then _________ because.....

decrease and absorption costing then variable costing because MFOH of previous periods is released from inventories under absorption

if inventories ________, fixed mFOH costs are released from_________, which in turn ________ net income

decrease, inventories, decreases

Costs that can be traced directly to a specific segment should be charged ________ to that segments and should not be ________ to other segments.

directly allocated

Variable costing method emphasized the impact of

fixed costs on profits

Advocated of variable costing argue that ....... because the _______ principle dictates that fixed MFOH costs should be charged to the current period.

fixed manufacturing costs are not really the costs of any particular unit product ; matching