ACC SB 6
common
If a segment is eliminated, ______ , fixed costs that are not traced to the segment will not change
only when
Costs should be allocated to segments for internal decision-making purposes ______ the allocation base actually drives the cost being allocated. -whether or not -only when
traceable; contribution margin
The segment margin is obtained by deducting the ______ fixed costs of a segment from the segment's ______. -traceable; revenues -common; contribution margin -traceable; contribution margin -common; revenues
margin available after a segment has covered all of its own costs
The segment margin represents the ______. -margin remaining after traceable and common fixed costs have been deducted -margin available after a segment has covered all of its own costs -excess of the segment revenue over the segment cost of goods sold -margin available to cover fixed costs
variable ; absorption
The two general costing approaches used by manufacturing companies to prepare income statements are ______ costing and ________ costing.
True
True or False A cost that can be traced directly to a specific segment should be charged directly to that segment and not allocated to other segments.
False
True or False Segment margin is most useful in decisions involving short-run changes in sales volume such as pricing special orders
-require
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 -do not recommend -recommend
probably be dropped
When a segment cannot cover its own costs, that segment should ______.
Computing contribution margin instead of gross margin
Which of the following is NOT a common mistake made in preparing segmented income statements? -Omitting costs that should be included. -Arbitrarily dividing common costs among segments. -Using inappropriate allocations bases. -Computing contribution margin instead of gross margin.
only traceable
Segment break-even calculations include ______ fixed expenses. -only common -both traceable and common -only traceable
variable
Segment contribution margin equals segment revenue minus the _______ expenses for the segment
$416,000
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 ________
Has an overall net operating loss of 10,000
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 -Has an overall net operating income of 10,000 -Is at the break even point
segments
A company's operations can be divided by product lines, geographical area, manufacturing plants, service centers or sales territories, which are known as
common
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.
segment
A part or activity within an organization about which managers would like cost, revenue or profit data is called a(n)
is incurred because of the existence of the segment
A traceable fixed cost ______. -varies with the activity level in a particular segment -will continue if the segment is discontinued -is incurred because of the existence of the segment -supports the operations of more than one segment
variable
Advocates of ______ costing believe the matching principle dictates that fixed costs should be recognized as an expense in the current period
-are not caused by and cannot be meaningfully traced to specific units of production -are period expenses
Advocates of variable costing believe fixed manufacturing costs ______. -should be ignored when preparing income statements -must be assigned to products -are not caused by and cannot be meaningfully traced to specific units of production -are period expenses
common
An otherwise profitable segment may appear to be unprofitable if ________ fixed costs are allocated to it
traceable fixed cost to the plant and a common fixed cost
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 -common fixed cost for both the plant and -common fixed cost for the plant and a traceable fixed cost
segment margin only
Assigning common fixed costs to segments impacts ______. -total corporate profit only -segment margin only -neither segment margin nor total corporate profit -both segment margin and total corporate profit
traceable ; common
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.
absorption
Because non manufacturing costs are not included as costs of a product, the use of _____ costing can lead to the omission of segment costs
only when the allocation base actually drives the cost being allocated even when the cost is non-traceable, so that all costs will be considered in the decisions
Costs should be allocated to segments for internal decision-making purposes ______. -equally over all segments even if the allocation base does not actually drive the cost -only when the allocation base actually drives the cost being allocated even when the cost is non-traceable, so that all costs will be considered in the decisions
should not be allocated to other segments
Costs that can be traced directly to a segment ______. -should not be allocated to other segments -should be allocated to all segments -may be treated as common costs
(Traceable fixed expenses + Common fixed expenses) ÷ Overall CM ratio
Dollar break-even for a company is calculated as ______. -(Traceable fixed expenses + Common fixed expenses) ÷ Overall CM ratio -Common fixed expenses ÷ Overall CM ratio -Traceable fixed expenses ÷ Overall CM ratio -(Traceable fixed expenses - Common fixed expenses) ÷ Overall CM ratio
segment ; contribution
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
account analysis
In ______ _______, each account is , each account is classified as either variable or fixed based classified as either variable or fixed based on the analyst's knowledge of how on the analyst's knowledge of how the account behaves.
absorption
In order to comply with GAAP and IFRS, the ______ costing method must be used for external reporting in the United States. -absorption -variable -segmented
absorption
In order to comply with GAAP and IFRS, the ______ costing method must be used for external reporting in the United States. -segmented -variable -absorption
$175,000
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 ______. $175,000 $212,500 $116,667 $250,000
absorption
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
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.
1. Account Analysis 2. Engineering Approach 3. Scatter graph 4. High Low Method 5. Least Squares Regression
Methods to estimate the variable and fixed components of mixed costs
common
One mistake companies make when preparing segmented income statements is arbitrarily assigning ______ fixed costs to segments.
traceable
Only costs that would disappear over time if a segment disappeared should be treated as _______ fixed costs.
11,000
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 ______. 5,000 11,000 9,000 6,000
-cannot cover its own costs -has a contribution margin that cannot cover traceable fixed costs
Select all that apply A segment should probably be dropped when the segment ______. -has a positive segment margin but cannot cover any common fixed costs -cannot cover its own costs -has a contribution margin that cannot cover traceable fixed costs -has important side effects on other segments
-required by GAAP and IFRS -used by most companies for both internal and external reports
Select all that apply Absorption costing is ______. -required by GAAP and IFRS -rarely used -the preferred method for internal decision making -used by most companies for both internal and external reports
-arbitrarily allocating common fixed costs -inappropriately assigning traceable fixed costs -omitting costs that should be included
Select all that apply Common mistakes made by companies when assigning costs to segments include ______. -arbitrarily allocating common fixed costs -inappropriately assigning traceable fixed costs -inappropriately allocating variable costs -omitting costs that should be included
-a reduction in the overall profits of the company -the loss of the segment's revenues
Select all that apply Discontinuing a profitable segment results in ______. -reduced common fixed costs for the company -a reduction in the overall profits of the company -the loss of the segment's revenues
-create problems in reconciling internal and external reports -require that the same method be used for both internal and external segment reporting -require segmented financial data be included in annual reports
Select all that apply GAAP and IFRS rules ______. -create incentives for companies to use the contribution margin format in segment reporting -create problems in reconciling internal and external reports -require that the same method be used for both internal and external segment reporting -require segmented financial data be included in annual reports
-holds managers responsible for costs they cannot control -could reduce the overall profits of the company -distorts the profitability of segments
Select all that apply Incorrectly or arbitrarily assigning common costs to segments ______. -holds managers responsible for costs they cannot control -causes company net income to be reported incorrectly -could reduce the overall profits of the company -ensures all common costs will be covered -distorts the profitability of segments
-omission of upstream and downstream costs -under-costing of segment
Select all that apply Using absorption costing for segmented income statements can lead to ______. -omission of upstream and downstream costs -inconsistencies between internal and external reports -the need to maintain two costing systems -under-costing of segments
-traceable fixed cost will disappear -common fixed cost will remain unchanged
Select all that apply When a segment is eliminated, a ______. -common fixed cost will disappear -traceable fixed cost will disappear -traceable fixed cost will remain unchanged -common fixed cost will remain unchanged
-the segment's traceable fixed costs -the segment's contribution margin
Select all that apply When calculating the profit impact of discontinuing a segment, consider _____. -the segment's traceable fixed costs -common costs allocated to the segment -the segment's contribution margin
-cost of goods sold consists of only variable manufacturing costs -traceable fixed expenses are deducted from contribution margin
Select all that apply When preparing a segment margin income statement ______. -fixed manufacturing costs are included in cost of goods sold -common fixed expenses are excluded from the statement -cost of goods sold consists of only variable manufacturing costs -traceable fixed expenses are deducted from contribution margin
-Reported net income on the statements often differ. -Both income statements include product and period costs.
Select all that apply Which of the following statements are correct regarding income statements prepared under variable and absorption costing? -Reported net income on the statements often differ. -Absorption costing categorizes costs based on cost behavior. -The difference between the statements is how total manufacturing overhead is accounted for. -Both income statements include product and period costs.
engineering approach
The _____ ______ classifies costs based upon an industrial engineer's evaluation of production methods, and material, labor, and overhead requirements.
higher than
The company-wide break-even sales will always be ______ the sum of the segment break-even sales. -lower than -either higher or lower than -higher than -equal to
fixed overhead is accounted for
The difference between reported net income on variable costing and absorption costing income statements is based on how ______. -cost classifications are defined -fixed overhead is accounted for -expenses are organized -the statements are formatted
profitibility
The segment margin is a valuable tool for assessing the long-run ______ of a segment. -revenue potential -profitability -adaptability -return on investment
