ACC 1820 - Variable Costing & Segment Reporting
Absorption costing net income is calculated by subtracting selling and administrative expenses from ____ ________
Gross Margin
Managers who believe that all manufacturing costs must be assigned to products in order to properly match the cost of production with sales are advocates of __________ costing
Absorption
For external reporting, income statements are generally prepared using ______ costing, while ______ costing is used for internal decision making purposes.
Absorption Variable
The company-wide break-even sales will always be ______ the sum of the segment break-even sales
higher than
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 $
28,990
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. The unit product cost of each frame using variable costing is $
68
The number of units produced does not affect net operating income when using ________ costing
Variable
Costs are separated between variable and fixed expenses when using ______ costing, whereas ______ costing separates costs between product and period
Variable Absorption
Common mistakes made by companies when assigning costs to segments include _________
arbitrarily allocating common fixed costs inappropriately assigning traceable fixed costs omitting costs that should be included
An otherwise profitable segment may appear to be unprofitable if ______ fixed costs are allocated to it.
common
One mistake companies make when preparing segmented income statements is arbitrarily assigning _________ fixed costs to segments
common
An example of a traceable fixed cost for General Motors' Corvette Division is the _______
depreciation on equipment used to manufacture Corvettes
Product costs under absorption costing include _____
direct labor variable manufacturing overhead fixed manufacturing overhead direct materials
Using variable costing and the contribution approach for internal decision making ________
enables CVP analysis facilitates explaining changes in net income supports decision making
When using variable costing, fixed manufacturing overhead is ______.
expensed in the period incurred
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.
fixed manufacturing overhead
Under variable costing the cost of a unit of inventory does not contain ______.
fixed manufacturing overhead
A variable costing income statement _______
focuses on fixed and variable expenses, while an absorption costing income statement focuses on period and product costs calculates contribution margin while the absorption costing income statement calculates gross margin
An absorption costing income statement calculates _______
gross margin by deducting cost of goods sold from sales
A segment should probably be dropped when the segment
has a contribution margin that cannot cover traceable fixed costs cannot cover its own costs
The segment margin represents the
margin available after a segment has covered all of its own costs
Using absorption costing for segmented income statements can lead to
omission of upstream and downstream costs under-costing of segments
Segment break-even calculations include ______ fixed expenses
only traceable
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
U.S. GAAP and IFRS ______ publicly traded companies include segmented financial data prepared for external users that use the same methods used in internal segment reports.
require
GAAP and IFRS rules for publicly traded companies
require that the same method be used for both internal and external segment reporting require segmented financial data be included in annual reports create problems in reconciling internal and external reports
Absorption costing is ____
required by GAAP and IFRS used by most companies for both internal and external reports
Assigning common fixed costs to segments impacts
segment margin only
Costs that can be traced directly to a segment
should not be allocated to other segments
When calculating the profit impact of discontinuing a segment, consider
the segment's contribution margin the segment's traceable fixed costs
Only costs that would disappear over time if a segment disappeared should be treated as _____ fixed costs
traceable
The two general costing approaches used by manufacturing companies to prepare income statements are _______ costing and __________ costing.
variable Absortion
Discontinuing a profitable segment results in ______
the loss of the segment's revenues a reduction in the overall profits of the company
Variable costing income statements are based upon a ______ format
Contribution Margin
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 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
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.
Direct costing or marginal costing are other terms for _______ costing
Variable
Segment contribution margin equals segment revenue minus the ________ expenses for the segment.
Variable
A segment should probably be dropped when the segment _______
cannot cover its own costs has a contribution margin that cannot cover traceable fixed costs
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
$42,000 + $59,000 = $101,000
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 ____
$70,000 ÷ 40% = $175,000
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
$76.35 × 155 = $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
($140 + $19) × 780 quilts sold = $124,020
Advocates of ___________ costing believe fixed costs are an essential part of product production.
Absorption
Because nonmanufacturing costs are not included as costs of a product, the use of ____________ costing can lead to the omission of segment costs.
Absorption
Financial statement users need to be aware of changes in inventory levels when using __________ costing.
Absorption
In order to comply with GAAP and IFRS, the Blank______ costing method must be used for external reporting in the United States.
Absorption
If a segment is eliminated, _____________ fixed costs that are not traced to the segment will not change
Common
The difference between reported net income on variable costing and absorption costing income statements is based on how ______.
Fixed overhead is accounted for
Absorption costing can lead managers to mistakenly believe that fixed manufacturing overhead costs will Blank______ in total as the number of units produced increases.
Increase
Decision-making problems that could occur when using absorption costing include inappropriate ______ decisions, and decisions made to ______ products that are, in fact, profitable.
Pricing Drop
When a segment cannot cover its own costs, that segment should
Probably be dropped
When using absorption costing, fixed manufacturing overhead cost per unit = Total fixed manufacturing overhead cost divided by units:
Produced
Absorption costing treats fixed manufacturing overhead as a ______ cost
Product
Absorption costing treats fixed manufacturing overhead as a ______ cost.
Product
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
When a segment is eliminated, a ____________________________________
traceable fixed cost will disappear common fixed cost will remain unchanged
Segment margin is obtained by deducting each segment's ________
traceable fixed costs from its 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.
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 Blank______.
$5.38 × 1,203 = $6,472.14
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
$50 + $75 + $27 + ($30,000 ÷ 10,000) = $155 per uni
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
$45 + $37 + $8 + ($58,000 ÷ 2,000) = $119
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. Variable selling and administrative costs are $11 per unit sold and fixed selling and administrative costs are $13,200. The unit product cost using variable costing is ______ per unit.
47
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
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 $
94,304
Fixed manufacturing overhead costs are included as part of Work in Process inventory under _______
Absorption Costing Only
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
Increased online sales contribution margin [$100,000 × 10% × ($60,000 ÷ $100,000)] is $6,000 + $5,000 saved from stopping catalog sales = $11,000.
If a segment is entirely eliminated, common fixed costs will _____
Not change
Assigning common fixed costs to segments impacts ___________
Segment margin only
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
The company-wide break-even sales will always be Blank______ the sum of the segment break-even sales
higher than
A traceable fixed cost
is incurred because of the existence of the segment
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 the ______________ fixed cost of the store and the ____________ fixed cost of each product line sold in the store.
traceable Common
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 Blank______ for the individual product lines made in the plant
traceable fixed cost to the plant and a common fixed cost
The variable costing income statement separates ______
variable and fixed expenses