Managerial Accounting Chapter 6 LearnSmart

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

a

When constructing segmented reports: a. some costs are not traceable to particular segments b. all costs should be allocated to the various segments c. allocating common costs to segments improves segment analysis

a

The two general costing approaches used by manufacturing companies to value inventory and cost of goods sold are ____________ costing and _________ costing

variable; absorption

Variable costing treats fixed manufacturing overhead as a _______ cost

period

Segment contribution margin equals segment revenue minus the _________ expenses for the segment

variable

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

variable

A company with 3 sements has $10,000 in common fixed expenses. All 3 segments are at the break-even point. As a result, the company: a. has an overall net operating income of $10,000 b. has an overall net operating loss of $10,000 c. is at the break-even point

b

Costs should be allocated to segments for internal decision-making purposes: a. even when the cost is non-traceable, so that all costs will be considered in the decisions b. only when the allocation base actually drives the cost being allocated c. even if the allocation base doesn't actually drive the cost d. equally over all segments

b

Net income computed under ______ costing may not agree with the results of CVP analysis a. variable b. absorption c. marginal d. direct

b

When inventory decreases, net operating income under absorption costing will be _____ cost of goods sold under variable costing a. more than b. less than c. equal to

b

Net operating income is lower under absorption costing (than under variable costing) when inventory decreases because _______ manufacturing overhead deferred in previous periods is released from inventory to the _______ statement in the cost of goods sold account.

fixed; income

True or false: It is easy to determine whether a cost should be classified as traceable or common

False

Under absorption costing, fixed manufacturing overhead costs flow to the income statement when: a. the period has ended b. units are sold c. units are produced d. the fixed manufacturing overhead cost is incurred

b

Decision-making problems that could occur when using absorption costing include inappropriate _______ decisions, and decisions made to ______ products that are, in fact, profitable a. production; focus upon b. strategy; produce c. pricing; drop d. reporting; add

c

When should a segment be discontinued? a. when the segment contribution margin doesn't cover the traceable fixed costs b. when the segment margin is positive, but it doesn't cover the common fixed costs c. when the segment margin is negative d. when the segment contribution margin covers the traceable fixed costs, but doesn't cover the common fixed costs

a & c

The use of ______ costing can lead to the omission of segment costs because nonmanufacturing costs are not included as costs of a product

absorption

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 ___________ fixed cost

common

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

Costs are separated between variable and fixed expenses when using _________ costing, whereas _______ costing separates costs between product and period

variable; absorption

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

Variable selling and administrative cost is $4 per unit sold, and fixed selling and administrative costs totals $48,400. A total of 429 units were produced and 297 units were sold. Total selling and administrative cost is:

$49,588

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

Blissful Breeze manufactures and sells ceiling fans. Each fan has a unit 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 * $112

Frames, Inc. manufactures large wooden picture frames. Each frame requires $19 of direct materials and $40 of direct labor. Variable manufacturing overhead cost $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 per month is $15,000. The unit product cost of each frame using variable costing is:

68 Unit product cost=$19 + $40 + $9 = $68 Selling and admin expenses are not product costs. Under variable costing, fixed overhead is not a product cost

Using variable costing and the contribution approach for internal decision making: a. facilitates explaining changes in net income b. enables CVP analysis c. supports decision making d. is required as part of GAAP financial statements

A, B, C

Which of the following statements regarding segmented reporting is incorrect? a. segmented reporting provides top management with cost, profit and investment performance data on the parts or activities of the organization b. segmented reporting is not useful for organizations with more than one product c. segments may be compromised of product lines, sales territories, or responsibility centers d. segmented reporting allows top management to evaluate the performance of lower level managers

b

When using absorption costing and explaining changes in operating income, financial statement users need to be aware of changes in _______ levels.

inventory

The segment margin equals the segment's contribution margin less the segment's __________ fixed costs

traceable

When computing a segment margin, only _________ fixed costs are charged to the particular segment

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 _______ fixed cost for the store, and a _______ fixed cost for each product line sold in the store.

traceable; common

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 pillows and sold 15,408. Total fixed expenses on the variable costing contribution format income statement equal:

$101,000 42,000+59,000

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 $76.35*155

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

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

True or false: When calculating the segment margin, both traceable and common fixed costs are charged to the segment

False

Costs that can be traced directly to a segment: a. should not be allocated to other segments b. should be allocated to all segments b. may be treated as common costs

a

In segmented reporting, what are the two kinds of fixed costs? a. traceable and common b. general and common c. manufacturing and traceable d. manufacturing and general

a

Manufacturing cost per unit of a product under variable costing are: a. direct labor, direct materials, and variable overhead b. direct materials, direct labor, variable overhead and variable selling and administrative expenses c. direct labor, direct materials and all manufacturing overhead d. direct labor, direct materials and fixed overhead

a

Segment break-even calculations include: a. only traceable fixed expenses b. only common fixed expenses c. both traceable and common fixed expenses

a

Under both variable costing and absorption costing, variable and fixed administrative costs are treated as a. period costs b. product costs

a

Variable costing treats ________ manufacturing costs as product costs a. only variable b. no c. only fixed d. all

a

Which of the following statements is correct regarding segmented reporting? a. traceable fixed costs are charged to segments, but common fixed costs are not b. both traceable and common fixed costs are charged to segments in order to calculate the segment margin c. fixed costs are not charged to segments because only variable costs are used to calculate the segment margin d. common fixed costs are charged to segments, but traceable fixed costs are not

a

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 & b

Which of the following approaches may be used internally by manufacturing companies for costing products for the purposes of valuing inventory and cost of goods sold? a. variable costing b. absorption costing c. statement costing d. fixed costing

a & b

Discontinuing a profitable segment results in: a. the loss of the segment's revenues b. reduced common fixed costs for the company c. a reduction in the overall profits of the company

a & c

Common mistakes made by companies when assigning costs to segments include: a. arbitrarily allocating common fixed costs b. omitting costs that should be included c. inappropriately allocating variable costs d. inappropriately assigning traceable fixed costs

a, b, d

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

Differences in net operating income between absorption costing and variable costing is due to the: a. format of the income statements b. timing of when fixed manufacturing overhead is expensed c. amount of sales revenue reported d. amount of selling and administrative cost expensed

b

How is the contribution format used in segment reporting different from a contribution income statement for the company as a whole? a. the contribution format income statement used by the entire company includes fixed manufacturing overhead in cost of goods sold b. fixed costs are divided into traceable and common costs, so that managers are only held accountable for the traceable costs of their segments c. the contribution format used for segmented reporting divides costs into their fixed and variable components

b

Net operating income under absorption costing is generally _________ net income under variable costing in periods in which inventory increases a. less than b. higher than c. equal to

b

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

b

When there is no change in inventory, net operating income will be: a. higher under absorption costing than under variable costing b. the same under both absorption and variable costing c. higher under variable costing than under absorption costing

b

Under absorption costing for segmented income statements can lead to: a. inconsistencies between internal and external reports b. under-costing of segments c. omission of upstream and downstream costs d. the need to maintain two costing systems

b & c

A variable costing income statement: a. does not include fixed manufacturing overhead, which is included on an absorption costing income statement b. calculates contribution margin while the absorption costing income statement calculates gross margin c. is constructed exactly like an absorption costing income statement d. focuses on fixed and variable expenses, while an absorption costing income statement focuses on period and product costs

b & d

Absorption costing and variable costing net operating income will be equal when: a. there is a change in ending, but not beginning, inventory b. the number of units produced equals the number of units sold c. the change in beginning inventory is greater than the change in ending inventory d. there is no beginning and no ending inventory

b & d

When a segment is eliminated, a: a. common fixed cost will disappear b. traceable fixed cost will disappear c. traceable fixed cost will remain unchanged d. common fixed cost will remain unchanged

b & d

The number of units produced equals the number of units sold: a. absorption costing total expense is less than variable costing total expense b. absorption costing net income is equal to variable costing net income c. absorption costing total expense is greater than variable costing total expense d. absorption costing net income is less than variable costing net income e. under both absorption costing and variable costing, all fixed overhead incurred flows to the income statement f. absorption costing net income is greater than variable costing net income

b & e

When the number of units produced equals the number of units sold: a. absorption costing total expense is greater than variable costing total expense 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. absorption costing net income is greater than variable costing net income e. absorption costing net income is less than variable costing net income f. under both absorption costing and variable costing, all fixed overhead incurred flows to the income statement

b & f

Product costs under absorption costing are: a. variable selling and administrative b. direct labor c. fixed manufacturing overhead d. direct materials e. fixed selling and admin f. variable manufacturing overhead

b, c, d, f

Absorption costing can lead managers to mistakenly believe that fixed manufacturing overhead costs will ______ as the number of units produced increases a. decrease in total b. remain the same in total c. increase in total

c

Absorption costing net operating income may not agree with the net operating income calculated for CVP analysis due to the way in which __________ is handled in absorption costing a. fixed selling and administrative expenses b. variable manufacturing overhead c. fixed manufacturing overhead d. direct labor cost

c

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

c

Under variable costing the cost of a unit of inventory does not contain: a. direct materials b. direct labor c. fixed manufacturing overhead d. variable manufacturing overhead

c

One mistake companies make when preparing segmented income statements is arbitrarily assigning ______ fixed costs to segments

common

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

contribution margin; fixed

Segmented income statements: a. may be prepared for the various departments in the company, but not for specific product lines b. are best used to determine which locations are profitable, rather than which product lines are profitable c. should only be used for profit centers d. may be prepared for activities at many levels in a company

d

SPS Products has two divisions - Catalog Sales and Online Sales. For the last quarter 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: a. $9,000 b. $6,000 c. $5,000 d. $11,000

d (100,000 x 10% x 60,000/100,000) 6,000+5,000 saved from stopping catalog sales = 11,000