Chapter 7: Variable costing and Segment Reporting: Tools for Management

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

Put'er There manufactures baseball gloves. Each $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 $13,000. Last period, 800 gloves were produced, and 585 gloves were sold. The unit product cost using variable costing is ____________ per unit.

$47 Unit product cost= $22 + $18 + $7 = $47. Selling and administrative costs are never considered part of product cost.

when the number of units produced equals the number of units sold, _______________/

- absorptions costing net income is equal to variable costing net income - under both absorption costing and variable costing, all fixed overhead incurred flows to the income statement.

discontinuing a profitable segment results in______________.

- reduction in overall profits of the company - the loss of the segment's revenue

absorption costing and variable costing net operating income will be equal when _____________.

- the number of units produced equals the number of units sold - there is no begininning and no ending inventory.

When preparing a segment margin income statemtn:

- variable and fixed costs are listed in seperate sections of the statement - cost of goods sold consists of only variable manufacturing costs

Under variable costing the cost of a unit of inventory does not contain ____________.

Fixed manufacturing

net income under ____________ costing may not agree with the results of CVP analysis

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

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.

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

be dropped

a fixed cost that supports the operations of more than one segment, but is not traceable in whole or part or any segment is _____________

common

variable and net income may be computed by multiplying the number of units sold by the ____________________ ____________________ per unit and subtracting total ___________________expenses

contribution margin fixed

Variable costing income statements are based upon a _______________ format

contribution margin

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.

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

fixed MOH

an absorption cosign income statement calculates ____________.

gross margin by deducting cost of goods sold from sales.

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

higher than

When units sold exceed units produced, net income under variable costing will generally be ________________

higher than

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

increase

a traceable fixed cost _______________.

is incurred because of the existence of the segment.

Costs should be allocated to segments for internal decision-making purposes:

only when the allocation base actually drives the cost being allocated.

under both variable costing and absorption costing. variable and fixed selling and administrative costs are treated as _______________costs.

period

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

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

the segment margin represents the ___________________.

represents the margin available after a segment has been covered all of its own costs.

From a decision making point of view, ____________________ margin is most useful for major capacity decisions and _____________________ margin is most useful for short-term sales volume decisions.

segment, contribution

costs that can be traced directly to a segment

should not be allowed to other segments.

when there is no change in inventory, net operating income will be _________________.

the same under both absorption and variable costing.

if there is no change in inventory, net operating cost will be ____________.

the same under both absorption costing and variable costing.

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:

traceable fixed cost to the plant and a common fixed cost.

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 being expensed as one large sum.

true

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

variable costing and absorption costing