Chapter 6 acct-208

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 of a store is a ______ the product lines.

traceable fixed cost for the store and a common fixed cost for

A segment should probably be dropped when the segment

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

If a segment is entirely eliminated, common fixed costs will

not change

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

Reason: $5.38 × 1,203 = $6,472.14

Which of the following statements is true?

A segmented income statement should separate traceable fixed costs from common fixed costs.

Which of the following statements is true?

Absorption costing income statements compute a gross margin.

Which of the following is a common mistake made by companies when assigning costs to segments?

Assigning common costs, such as the cost of the corporate headquarters buildings to segments is inherently arbitrary. It overstates the amount of cost that would disappear if any given segment were discontinued.

Which of the following statement is correct?

Internal income statements are generally prepared using variable costing and external income statements are generally prepared using absorption costing.

A traceable fixed cost ___

is incurred because of the existence of the segment

When the units produced exceed the units sold, the net operating income computed using the variable costing method is _________ the net operating income using the absorption costing method.

is less than

When the units produced are less than the units sold, the net operating income computed using the variable costing method is _________ the net operating income using the absorption costing method.

is greater than

Direct costing or marginal costing are other terms for ___ costing

variable

Which of the following costs explains the difference between absorption and variable costing net operating incomes?

Fixed manufacturing overhead

Which of the following statements is true?

Variable costing income statements report variable and fixed selling and administrative expenses separately.

Which of the following is not a unit product cost under variable costing?

Variable selling and administrative expense

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

fixed overhead is accounted for

For variable costing: Direct labor

Product cost

The segment margin represents the

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

Which of the following statements about the segment margin is not true?

x In preparing a segmented income statement, the variable expenses are deducted from sales to yield the contribution margin for each segment. The segment margin is obtained by deducting the common fixed costs that have been allocated to a segment from that segment's contribution margin. x The segment margin represents the margin available after a segment has covered all of its own costs. x The segment margin is the best gauge of the long-run profitability of a segment because it includes only those costs that are caused by the segment.

When a segment cannot cover its own costs, that segment should

be dropped

CVP analysis is enabled when using ______ costing income statements.

Variable

Max, Incorporated, has two divisions, South Division and North Division. South Division's sales, contribution margin ratio, and traceable fixed expenses are $500,000, 60%, and $100,000, respectively. What is the segment margin for the South Division?

$200,000

Dollar break-even for a company is calculated as

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

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 $

17483 -> (11.50 x 842) + 7800

When the number of units produced is greater than the number of units sold, variable costing net operating income will be _________

less than absorption costing net operating income

Variable costing treats ______ manufacturing costs as product costs.

Only variable

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

Reason: $42,000 + $59,000 = $101,000

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 the period, 2,000 rockers were produced and 1,640 were sold. The unit product cost using absorption costing is

Reason: $45 + $37 + $8 + ($58,000 ÷ 2,000) = $119

When there is no change in inventory, net operating income will be __ costing

Reason: Net operating income is higher under variable costing when inventories decrease.

Which of the following is the correct formula for computing the dollar sales for a segment to break even?

Segment traceable fixed expenses ÷ Segment CM ratio

Which of the following statements is true?

The sum of the dollar sales for all segments to break even will be less than the dollar sales for the company to break even if the company has some common fixed expenses.

A cost that can be traced directly to a specific segment should be charged directly to that segment and not allocated to other segments.

True

The number of units produced does not affect net operating income when using ______ costing.

Which of the following statements are correct? Variable costing emphasizes the impact of fixed costs on profit. x Both variable and absorption costing correctly identifies the additional variable costs incurred to make one more unit. (Reason: Only variable costing does this.) x Both variable and absorption costing correctly identifies the additional fixed costs incurred to make one more unit. (Reason: Additional fixed costs are not incurred when producing one more unit.) Absorption costing makes fixed costs appear to be variable.

Financial statement users need to be aware of changes in inventory levels when using __ costing

absorption

Financial statement users need to be aware of changes in inventory levels when using ______ costing.

absorption

Fixed manufacturing overhead costs are included as part of Work in Process inventory under

absorption costing only

Selling and administrative expenses

are always treated as period costs

Selling and administrative expenses ____

are always treated as period costs

On an absorption costing income statement, selling and administrative expenses

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

Segmented income statements

may be prepared for activities at many levels in a company

A segment should probably be dropped when the segment ___

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

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

common

Variable costing income statements are based upon a ___ format

contribution

Variable costing net income may be computed by multiplying the number of units sold by the _____ _____ per unit and sub total ___ expenses

contribution margin fixed

Net operating income is less under absorption costing than under variable costing when inventory for the period

decreases

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 on equipment used to manufacture Corvettes

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

fixed manufacturing overhead

An absorption costing income statement calculates:

gross margin by deducting cost of goods sold from sales

When units sold exceed units produced, net income under variable costing will generally be ______ net income under absorption costing.

higher than

Net operating income under absorption costing is generally ______ net operating income under variable costing in periods in which inventory increases.

higher than Reason: When inventory decreases, variable costing net income will be higher. Reason: The only time that net income under absorption costing could be equal to net income under variable costing is when there is no change in inventory.

When units produced exceed units sold, net income will generally be ______ costing.

higher under absorption costing than under variable

The target profit predicted by CVP analysis will ______ costing.

only work when using variable

For variable costing: fixed selling and admin

period

For variable costing: vari selling and admin

period

For variable costing: fixed manu oh

period cost

Absorption costing treats fixed manufacturing overhead as a ___ cost

product Reason: Fixed manufacturing overhead is treated as a period cost when using variable costing.

For variable costing: variable manu oh

product cost

The segment margin is the best gauge 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

Assigning common fixed costs to segments impacts

segment margin only

Common fixed expenses:

should not be allocated to segments.

When calculating the profit impact of discontinuing a segment, consider

the segment's traceable fixed costs the segment's contribution margin

When preparing a segment margin income statement

traceable fixed expenses are deducted from contribution margin cost of goods sold consists of only variable manufacturing costs

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

Bovine Corporation has two divisions: televisions and mobile phones. The mobile phone division has a contribution margin of $600,000. The company's common fixed costs and total traceable fixed costs are $100,000 and $500,000 respectively. Assuming the traceable fixed costs of the television division are $300,000, what is the segment margin of the mobile phone division?

$400,000

When the number of units produced equals the number of units sold

-all fixed overhead incurred flows to the income statement under both costing methods -absorption costing net income is equal to variable costing net income

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

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 total Units: 10,000 produced and 6,000 sold

Reason: $50 + $75 + $27 + ($30,000 ÷ 10,000) = $155 per unit

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

Reason: $76.35 × 155 = $11,834.25

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

Reason: ($1.05 × 1,203) + $4,500 = $5,763.15

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. Total variable expenses reported on Quaint Quilt's variable costing income statement for the quarter is

Reason: ($140 + $19) × 780 quilts sold = $124,020

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

Reason: Increased online sales contribution margin [$100,000 × 10% × ($60,000 ÷ $100,000)] is $6,000 + $5,000 saved from stopping catalog sales = $11,000.

The difference between absorption costing net operating income and variable costing net operating income can be explained by the way these two methods account for _________

fixed overhead costs

The difference in net operating income between absorption costing and variable costing is due to the

time when fixed overhead is expensed

Only costs that would disappear over time if a segment disappeared should be treated as ____ fixed costs.

traceable

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 ______ for the individual product lines made in the plant.

traceable fixed cost to the plant and a common fixed cost

Absorption costing income statements ignore _________

variable and fixed cost distinctions

The variable costing income statement separates

variable and fixed expenses

When the units produced are equal to the units sold, the net operating income computed using the variable costing method is _________the net operating income using the absorption costing method.

is equal to

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

Increase Reason: When fixed costs are put on a per unit basis, it appears that the total cost will increase as the number of units increase.

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

Reason: $70,000 ÷ 40% = $175,000

The company-wide break-even sales will always be______ the sum of the segment break-even sales.

Reason: Company-wide will always be higher because segment break-even does not include common fixed expenses.