SmartBook 5

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

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

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.

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

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

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

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

absorption variable

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

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 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

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

fixed overhead is accounted for

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

If a segment is entirely eliminated, common fixed costs will:

not chang

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

Product costs under absorption costing are:

variable manufacturing overhead direct labor direct material fixed maufacturing overhead

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

variable, absorption

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

True or false: Cost, profit and investment centers are segments, but sales territories, manufacturing plants, and service departments are not segments.

False

An absorption costing income statement calculates:

Gross margin by deducting cost of goods sold from sales

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 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

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

When a segment is eliminated, a:

common fixed cost will remain unchanged traceable fixed cost will disappear

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

fixed manufacturing overhead

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

fixed manufacturing overhead

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

The segment margin is a valuable tool for assessing the long-run ______ of a segment.

profitability

When using absorption costing, fixed manufacturing overhead cost per unit = Total fixed manufacturing overhead divided by:

units produced

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

absorption costing only

Under absorption costing product costs consist of:

both variable and fixed manufacturing costs

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

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

decreases

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

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

probably be dropped

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

The segment margin represents the:

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

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

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

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

Direct costing or marginal costing are other terms for ___ costing.

variable

Segment contribution margin equals segment revenue minus the ___ expenses for the segment.

variable

Variable costing income statements separate ___ expenses from ___ expenses.

variable fixed

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

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

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

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

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

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

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

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

Segment break-even calculations include:

only traceable fixed expenses

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

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.