ACCT202 CH 6 SB

CM% =

CM/Sales

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

absorption; variable

Sales - Variable costs =

contribution margin

Common fixed costs will __________ disappear if any particular segment is eliminated.

not

If a segment is entirely eliminated, common fixed costs will _________. - not change - be eliminated - decrease

not change

Under absorption costing products consist of ________ costs. - only fixed manufacturing - all manufacturing and selling and administrative - only variable manufacturing - both variable and fixed manufacturing

both variable and fixed

A fixed cost that supports the operating of more than one segment, but is not traceable in whole or part to any one segment is a(n) ______ fixed cost.

common

Net operating income is less under absorption costing than under variable costing when inventory for the period _________. - remains the same - decreases - increases

decreases

Traceable fixed costs will _______ over time if the segment itself is discontinued.

disappear

When units sold exceed units produced, net income under variable costing will generally be ________ net income under absorption costing. - equal to - lower than - higher than

higher than

When units sold exceeds units produced, net income under variable costing will generally be ________ net income under absorption costing. - equal to - higher than - lower than

higher than

Segment break-even calculations include _______ fixed expenses. - both traceable and common - only common - only traceable

only traceable

Variable costing treats _______ manufacturing costs as product costs. - all - only variable - only fixed - no

only variable

Absorption costing treats fixed manufacturing overhead as a _______ cost. - period - product

product

When using absorption costing, fixed manufacturing overhead cost per unit = Total fixed manufacturing overhead cost divided by units _________. - sold - (produced - units sold) - produced - in ending inventory

produced

Absorption costing is categorized by _______.

function

Absorption costing net income is calculated by subtracting selling and administrative expenses from _______ _______.

gross margin

Absorption costing net income is calculated by subtracting selling and administrative expenses from ________ _______.

gross margin

When a segment cannot cover its own costs, that segment should _________. - be combined with another profitable segment - recalculate its segment margin without including common fixed costs - probably be dropped

probably be dropped

Sleep Tight manufactures pillows. The company incurred $42,000 of fixed manufacturing overhead cost this year. Variable unit product cost was $17. Variable selling and administrative cost was $9 per unit and fixed selling and administrative expenses totaled $59,000. The company manufactured 28,000 pillows and sold 15,408. Total fixed expenses on the variable costing contribution format income statement equal: - $101,000 - $59,000 - $708,768 - $671,096

$101,000 ($42,000 + $59,000)

Given the following information, calculate the unit product cost under absorption costing: DM: $50/unit DL: $75/unit Variable OH: $27/unit Fixed OH: $30,000 total Units: 10,000 produced and 6,000 sold

$155 (50 + 75 +27 + (30,000/10,000) - 155/unit)

Blissful Breeze manufactures and sells ceiling fans. Variable selling and administrative expense is $11.50 per fan and fixed selling and administrative expense is $7,800 per month. If Blissful Breeze produces 900 fans and sells 842 fans this month, total selling and administrative expenses will be $_______.

$17,483 (842 x $11.50 = $9,683) (Fixed SA expenses = $7,800) ---> ($9,683 + $7,800 = $17,483)

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 ($70,000/40%)

The unit product cost of a blender is $24. If 900 blenders are produced and 849 blenders are sold, the total cost of goods sold is $_________.

$20,376 (849 x $24)

Product costs under absorption costing include: - fixed selling and administrative - variable selling and administrative - direct labor - direct materials - fixed manufacturing overhead - variable manufacturing overhead

- direct labor - direct materials - fixed manufacturing overhead - variable manufacturing overhead

A segment should probably be dropped when the segment __________. - has important side effects on other segments - has a contribution margin that cannot cover traceable fixed costs - cannot cover its own costs - has a positive segment margin but cannot cover any common fixed costs

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

Segment BE$ =

Traceable FC/CM%

Selling and administrative expenses __________. - are treated as period costs under absorption costing only - are treated as period costs under variable costing only - may be treated as either product or period costs - are always treated as period costs

are always treated as period costs

Variable costing is categorized by _________.

behavior

An example of a traceable fixed cost for General Motor's Corvette Division is the ________. - direct materials used in the production of the Corvettes - depreciation on equipment used to manufacture Corvettes - utilities cost of the General Motors corporate headquarters - salary of the General Motors Chief Executive Officer

deprecation on equipment used to manufacture Corvettes

Under variable costing the cost of a unit of inventory does NOT contain __________. - fixed manufacturing overhead - direct materials - variable manufacturing overhead - direct labor

fixed manufacturing overhead

Under both variable costing and absorption costing, variable and fixed selling and administrative costs are treated as _______ costs. - period - product

period

Under both variable costing and absorption costing, variable and fixed selling and administrative costs are treated as _________ costs. - product - period

period

A company should never drop a segment with a ________ segment margin.

positive

When allocating fixed manufacturing overhead costs to units under absorption costing, the total fixed overhead costs must be divided by the number of units ___________.

produced

How do you calculate total sales?

selling price per unit x number of units sold

True or False: Under absorption costing, fixed overhead is treated like a variable cost because a portion of the total cost is allocated to each unit produced, rather than being expensed as one large sum.

true

Blink sells and manufactures frames for eyeglasses. The unit product cost for frame #47320 is $76.35. Last period, Blink produced 200 frames and sold 155 of them. Total cost of goods sold equals _________.

$11,834.25 ($76.35 x 155 = $11,834.25)

Comfy Cozy Chairs makes rockers that require $45 of direct materials and $37 of direct labor. Variable manufacturing overhead is $8 per rocker, and fixed manufacturing overhead totals $58,000. Variable selling and administrative costs are $15 per rocker, and fixed selling and administrative costs total $102,000. During that period, 2,000 rockers were produced and 1,640 were sold. The unit product cost using absorption costing is _________. - $125 - $119 - $90 - $105

$119 ($45 + $37 + $8 + ($58,000/2,000) = $119)

Granny's Touch manufactures and sells cookbooks. The company's variable cost of goods sold is $39,200 and variable selling and administrative expense is $6,200. Fixed manufacturing overhead is $19,700 and fixed selling and administrative expense is $9,290. An income statement prepared using variable costing shows $_______ as the total fixed expenses.

$28,990 ($19,700 + $9,290 = $28,990)

A company has two segments with total sales of $500,000 and total variable costs of $343,750. Traceable fixed expenses are $50,000 and common fixed expenses are $80,000. The break even in dollars for the company as a whole equals $___________.

$416,000 ($50,000 + $80,000 = $130,000) (($500,000 - $343,750)/$500,000 * 100 = 31.25%) ---> ($130,000/31.25% = $416,000)

Frames, Inc. picture frames each require $19 of direct materials and $40 of direct labor. Variable manufacturing overhead cost is $9 per grams and variable selling and administrative expense is $13 per Fram sold. Total fixed manufacturing overhead cost per month is $15,000 and the company produces 5,000 frames each month. The unit product cost of each frame using variable costing is $__________.

$68 (Cost = DM + DL + Variable OH) ----> ($19 + $40 + $9 = $68)

Blissful Breeze manufactures and sells ceiling fans. Each fan has a unit product cost of $112 and a unit selling price of $190. If Blissful Breeze produces 900 fans and sells 842 fans this month, the total cost of goods sold will be $_____________.

$94,304 (842 X $112 = $94,304)

Contribution margin - Traceable fixed costs =

Segment margin (does not include common fixed costs)

Company wide BE$ =

Total FC/CM%

Traceable fixed costs + Common fixed costs =

Total fixed costs

Citrus Scents produces body sprays. Each bottle has a unit product cost of $5.38. This month 1,490 bottles were produced and 1,203 bottles were sold. Total cost of goods sold is: - $8,016.20 - $1,544.06 - $6,472.14

$6,472.14 (1,203 x $5.38 = $6,472.14)

Dollar break-even for a company is calculated as: - (Traceable fixed expenses + Common fixed expenses) / Overall CM ratio - (Traceable fixed expenses - Common fixed expenses) / Overall CM ratio - Common fixed expenses / Overall CM ratio - Traceable fixed expenses / Overall CM ratio

(Traceable fixed expenses + Common fixed expenses) / Overall CM ratio

Segment margin - Common expenses =

Operating income

If a segment is eliminated, _______ fixed cost that are NOT traced to the segment will not change.

common

How do you calculate total variable costs?

variable cost per unit x number of units sold

Put'er There manufactures baseball gloves that require $22 of direct materials and $18 of direct labor. Variable manufacturing overhead cost is $7 per glove 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: - $58.00 - $70.75 - $47.00 - $81.75

$47.00 ($22 + $7 + $18 = $47.00)

An absorption costing income statement calculates ________. - net income by deducted selling and administrative costs from contribution margin - gross margin by deducting cost of goods sold from sales - contribution margin by deducting variable costs from sales - net income by deducting fixed costs from contribution margin

gross margin by deducting cost of goods sold from sales

A traceable fixed cost _________. - is incurred because of the existence of the segment - will continue if the segment is discontinued - supports the operating of more than one segment - varies with the activity level in a particular segment

is incurred because of the existence of the segment

The variable costing income statement separates _________. - product and period costs - variable and fixed expenses - direct and indirect expenses - selling and administrative expenses

variable and fixed expenses

Variable costing income statements separate _________ expenses from ___________ expenses.

variable; fixed

Citrus Scents produces body sprays. Variable selling and administrative expense is $1.05 per bottle and fixed and selling and administrative expense is $4,500 per month. If 1,490 bottles are produced and 1,203 and sold in July, total selling and administrative expense for the month will be ________. - $4,500.00 - $6,064.50 - $5,763.15 - $1,564.50

$5,763.15 ($4,500 + ($1.05 x 1,203) = $5,763.15)

When using variable costing, fixed manufacturing overhead is ___________. - never expensed - expensed in the period incurred - assigned to units of the product and expensed as the units are sold

expensed in the period incurred