Chapter 4
The company-wide break-even sales will always be ______ the sum of the segment break-even sales.
higher than
When units sold exceed units produced, net income under variable costing will generally be _______ net income under absorption costing.
higher than
When units produced exceed units sold, net income will generally be:
higher under absorption costing than under variable costing
A traceable fixed cost:
is incurred because of the existence of the segment
Segmented income statements:
may be prepared for activities at many levels in a company
When inventory decreases, cost of goods sold under absorption costing will be ______ cost of goods sold under variable costing.
more than
When a segment cannot cover its own costs, that segment should:
probably be dropped
for external reporting, income statements are generally prepared using ___ costing, and ___ costing is used for internal decision making purposes.
variable absorbtion
The variable costing income statement separates
variable and fixed expenses
Product costs under absorption costing are:
variable manufacturing overhead direct labor direct material fixed maufacturing overhead
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
An absorption costing income statement calculates:
Gross margin by deducting cost of goods sold from sales
True or false: Cost, profit and investment centers are segments, but sales territories, manufacturing plants, and service departments are not segments.
False
under absorption costing, fixed MOH costs flow to the income statement when: a. units are sold b. the period has ended c. units are produced d. the fixed MOH cost is incurred
a. units are sold
Costs are categorized by function when using ___ costing and by behavior when using ___ costing.
absorption variable
An example of a traceable fixed cost for General Motors' Corvette Division is the:
depreciation cost on the equipment used to manufacture the Corvettes
The general guideline is to treat as traceable only those costs that would ___ over time if the segment was discontinued.
disappear
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
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
absorption costing can lead mangers to mistakenly believe that fixed MOH costs will ________ as the number of units produced increases a. remain the same in total b. increase in total c. decrease in total
b. increase in total
product costs under absorption costing are (check all that apply): a. direct labor b. variable manufacturing overhead c. variable S&A d. fixed manufacturing overhead e. fixed S&A f. direct materials
d, b, a, and f
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
SPS Products has two divisions—Catalog Sales and Online Sales. For the last quarter the Catalog Sales segment margin was ($5,000). Online sales were $100,000. Online Sales contribution margin was $60,000, and its segment margin was $40,000. If Catalog Sales are discontinued, it is estimated that online sales will increase by 10%. Discontinuing Catalog Sales should increase company profits by:
$11,000
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
Comfy Cozy Chairs makes and sells rockers. Each rocker requires $45 of direct materials and $37 of direct labor. Variable manufacturing overhead amounts to $8 per unit, and fixed manufacturing overhead totals $58,000. Variable selling and administrative costs amount to $15 per unit, and fixed selling and administrative costs total $102,000. During the period, 2,000 rockers were produced and 1,640 were sold. The unit product cost using absorption costing is
$119 $45 + $37 + $8 + ($58,000/2,000) = $119
The Quaint Quilt produces and sells handmade quilts. Variable manufacturing costs total $140 per quilt. Fixed manufacturing overhead totals $68,250 per quarter. Variable selling and administrative costs are $19 per quilt sold, and fixed selling and administrative costs are $50,000 per quarter. Last quarter, the company produced 910 quilts and sold 780 quilts. The total variable cost reported on Quaint Quilt's variable costing income statement is:
$124,020 ($140 + $19) x 780 quilts sold = $124,020
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:
101000
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
Pearls, Pearls, Pearls! manufactures and sells jewelry. The total variable cost of goods sold this month is $72,490. Variable selling and administrative cost is $22 per unit sold. If 350 units are produced and 314 units are sold this month, the total variable cost reported on the income statement for the month is $___.
79,398
When inventory increases, which costing method generally results in higher net income?
Absorption costing
True or false: Absorption costing and variable costing always result in the same net operating income each year.
False
which of the following statements is correct regarding usefulness of the segmented income statement for segment reporting? a. segmented income statements allocate common fixed costs among the various segments in order to ensure that these costs are covered. b. segmented income statements can be broken down by department and further broken down by product lines within each department c. segmented income statements are less detailed, thus more useful to management than absorption costing income statements
b
Blissful Breeze manufactures and sells ceiling fans. each fan has a unit product cost of $112 and a unit selling price of $190. if BB produces 900 fans and sells 842 fans this month, the total COGS will be what?
product cost X amount sold $112 X 842 = $94,304
The segment margin is a valuable tool for assessing the long-run ______ of a segment.
profitability
A part or activity within an organization about which managers would like cost, revenue or profit data is called a(n) ___.
segment
A company's operations can be divided by product lines, geographical area, manufacturing plants, service centers or sales territories, which are known as ___.
segments
a company's operations can be divided by product lines, geographical area, manufacturing plants, service centers or sales territories, which are known as ____________.
segments
The segment margin represents the:
the margin available after a segment has covered all of its own costs
Given the following information, calculate the unit product cost under absorption costing. Direct materials: $50/unit Direct labor: $75/unit Variable manufacturing overhead: $27/unit Fixed manufacturing overhead: $30,000 Units produced: 10,000 Units sold: 6,000
$155 Rationale: $50 + $75 + $27 + ($30,000/10,000) = $155 per unit
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
a co's variable COGS is $39,200 and variable S&A expense is $6,200. Fixed MOH is $19,700 and fixed S&A expense is $9,290. An income statement prepared using variable costing shows $__________ as the total fixed expenses.
$19,700 + $9,290 = $28,990
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.
28990
Citrus Scents produces body sprays. Each bottle has a unit product cost of $5.38. The company produced 1,490 bottles this month and sold 1,203 of those bottles. Total cost of goods sold was:
6472.14
Frames, Inc. manufactures large wooden picture frames. Each frame requires $19 of direct materials and $40 of direct labor. Variable manufacturing overhead cost is $9 per frame produced, and variable selling and administrative expense is $13 per frame sold. The company produces 5,000 units each month and total fixed manufacturing overhead cost per month is $15,000. The unit product cost of each frame using variable costing is $___.
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 $___.
94304
When should a segment be discontinued? A) when the segment margin is negative b) when the segment contribution margin doesn't cover the traceable fixed costs c) when the segment margin is positive, but doesn't cover the common fixed costs d) when the segment contribution margin covers the traceable fixed costs, but doesn't cover the common fixed costs
A and B
Match the costing method with the way costs are separated for the method Absorption costing vs. Variable costing a) Variable and Fixed b) manufacturing and selling and administrative
Absorption costing matches with b- because absorption costing separates product (manufacturing) costs from period (S&A) costs. Variable costing matches with a- because Variable costing deducts all variable expenses from sales to determine contribution margin and all fixed expenses from cont margin to determine income or loss.
When using variable costing, fixed manufacturing overhead is: A) never expensed B) expensed in the period incurred C) assigned to units of the product and expensed as the units are sold
B) expensed in the period incurred
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.
construct an income statement using absorption costing
Sales - total COGS = Gross margin - Total S&A costs = NOI
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, b, and d
which of the following costs make up the manufacturing cost per unit of a product under variable costing (check all that apply): a. direct labor b. variable manufacturing overhead c. variable S&A d. fixed manufacturing overhead e. fixed S&A f. direct materials
a, b, and f
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
a, c, d
when inventory increases, absorption costing net income is higher than variable costing net income due to the fixed manufacturing overhead: a. deferred in the inventory account on the balance sheet b. released to the COGS account on the income statement
a. deferred in the inventory account on the balance sheet
absorption costing is: (check all that apply) a. the preferred method for internal decision making b. rarely used c. used by most companies for both internal and external reports d. required by GAAP and IFRS
c and d
a traceable fixed cost: a) would continue if the segment were discontinued b) varies with the activity level in a particular segment c) is incurred because of the existence of the segment d) supports operations of more than 1 segment
c) is incurred because of the existence of the segment
S&A expenses: a. are treated as period costs under absorption costing only b. are treated as period costs under variable costing only c. are always treated as period costs d. may be treated as either period or product costs
c. are always treated as period costs
in segmented reporting, what are the 2 kinds of fixed costs? a. manufacturing and general b. manufacturing and traceable c. traceable and common d. general and common
c. traceable and common
A segment should be discontinued when the segment:
cannot cover its own costs has a contribution margin that cannot cover traceable fixed costs
If a segment is eliminated, ___ fixed costs that are not traced to the segment will not change.
common
if a segment is eliminated, _____________ fixed costs that are not traced to the segment will not change.
common
When a segment is eliminated, a:
common fixed cost will remain unchanged traceable fixed cost will disappear
Net operating income is less under absorption costing than under variable costing when inventory for the period:
decreases
If a segment is entirely eliminated, common fixed costs will:
not chang
Segment break-even calculations include:
only traceable fixed expenses
Variable costing treats ______ manufacturing costs as product costs.
only variable
When allocating fixed manufacturing overhead cost to units under absorption costing, the total fixed overhead costs must be divided by the number of units ___.
produced
Absorption costing treats fixed manufacturing overhead as a ______ cost.
product
When there is no change in inventory, net operating income will be:
the same under both absorption costing and variable costing
Absorption costing and variable costing net operating income will be equal when:
there is no beginning and no ending inventory the number of units produced equals the number of units sold
The segment margin equals the segment's contribution margin less the segment's ___ fixed costs.
traceable
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
When using absorption costing, fixed manufacturing overhead cost per unit = Total fixed manufacturing overhead divided by:
units produced
costs are separated from variable and fixed expenses when using _________________ costing, whereas ______________ costing separates costs between product and period.
variable; absorption
Fixed manufacturing overhead costs are included as part of Work in Process inventory under:
absorption costing only
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:
traceable fixed cost to the plant and a common fixed cost for the individual product lines made in the plant
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 in a(n) ______________ fixed cost for the store, and a(n) _________ fixed cost for each product line sold in the store.
traceable; common
When the number of units produced equals the number of units sold:
under both absorption costing and variable costing, all fixed overhead incurred flows to the income statement. absorption costing net income is equal to variable costing net income
Direct costing or marginal costing are other terms for ___ costing.
variable
Segment contribution margin equals segment revenue minus the ___ expenses for the segment.
variable
segment contribution margin equals segment revenue minus the _________________ expenses for the segment.
variable
Variable costing income statements separate ___ expenses from ___ expenses.
variable fixed
Costs are separated between variable and fixed expenses when using ______ costing, whereas ______ costing separates costs between product and period.
variable, absorption
Under absorption costing product costs consist of:
both variable and fixed manufacturing costs
absorption costing net operating income may not agree with the NOI calculated for CVP analysis due to the way in which _______________ is handled in absorption costing. a. fixed manufacturing overhead b. fixed S&A expense c. variable manufacturing overhead d. direct labor cost
a. fixed manufacturing overhead
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
The difference between reported net income on variable costing and absorption costing income statements is based on how:
fixed overhead is accounted for
NOI is lower under absorption costing (than under variable costing) when inventory decreases because ___________ MOH deferred in previous periods is released from inventory to the ______________ statement in the COGS account.
fixed; income
A company with three segments has $10,000 in common fixed expenses. All three segments are at the break-even point. As a result, the company:
has an overall net operating loss of $10,000
absorption and variable costing net income will be equal when: a. the change in beginning inventory is greater than the change in ending inventory b. there is no beginning and no ending inventory c. the number of units produced equals the number of units sold d. there is a change in ending, but not beginning inventory
b and c
when a segment is eliminated, a: a) traceable fixed cost will remain unchanged b) traceable fixed cost will disappear c) common fixed cost will disappear d) common fixed cost will remain unchanged
b and d
Absorption and variable costing net income are usually different due to the accounting for:
fixed manufacturing overhead
Put'er There manufactures baseball gloves. Each glove requires $22 of direct materials and $18 of direct labor. Variable manufacturing overhead cost is $7 per unit 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:
$47 per unit Unit product cost = $22 + $18 + $7 = $47. Selling and administrative costs are never considered part of product cost.
a co manufactures and sells jewelry. the total variable cost of goods sold is $72,490. variable S&A cost is $22 per unit sold. if 350 units are produced and 314 units are sold, the total variable cost reported on the income statement is:
$72,490 + ($22 X 314) = $79,398
Blink sells and manufactures frames for eyeglasses. The unit product cost is $76.35. Last period, Blink produced 200 frames and sold 155 of them. what is the total COGS?
$76.35 X 155 = $11,834.25
when the number of units produced equals the number of units sold: a. absorption costing net income is less than variable costing net income b. absorption costing net income is equal to variable costing net income c. absorption costing total expense is less than variable costing total expense d. under both absorption and variable costing, all fixed overhead incurred flows to the income statement e. absorption costing total expense is greater than variable costing total expense
b and d
Under variable costing the cost of a unit of inventory does not contain:
fixed manufacturing overhead
when using absorption costing, fixed MOH cost per unit = total fixed MOH divided by: a) units sold b) units produced c) units in ending inventory d) units produced- units sold
b) units produced
Comfy Chairs makes and sells rockers. each rocker requires $45 of direct materials and $37 of direct labor. Variable MOH amounts to $8 per unit, and fixed MOH totals $58,000. Variable S&A costs amount to $15 per unit, and fixed S&A costs total $102,000. During the period, 2,000 rockers were produced and 1,640 were sold. The unit product cost using absorption costing is: a. $125 b. $90 c. $119 d. $105
$45+$37+$8+ ($58,000/2,000) = $119 c