Accounting 2302 - Chapter 7,8,9

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

b) variable, absorption

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

b, c, & d

Discontinuing a profitable segment results in Blank______. (Select all that apply) a) a reduction in the overall profits of the company b) reduced common fixed costs for the company c) the loss of the segment's revenues

a & c

Variable costing income statements are based upon a ______ format. a) traditional b) contribution margin c) product vs period

b) contribution margin

Absorption and variable costing net income are usually different due to the accounting for ______. a) all product costs b) fixed manufacturing overhead c) all manufacturing overhead d) selling and administrative costs e) variable manufacturing overhead

b) fixed manufacturing overhead

When units produced exceed units sold, net income will generally be ______ costing. a) higher under variable costing than under absorption b) higher under absorption costing than under variable c) the same under both absorption costing and variable

b) higher under absorption costing than under variable

Costs are categorized by function when using ______ costing and by behavior when using ________ costing.

absorption & variable

Fixed manufacturing overhead costs are expensed as units sold as part of cost of goods sold under ________ costing, and expensed in full with period costs under ________ costing.

absorption & variable

For external reporting, income statements are generally prepared using ________ costing, while ________ costing is used for internal decision making purposes.

absorption & variable

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

b) should not be allocated to other segments

The variable costing income statement separates ______. a) direct and indirect expenses b) variable and fixed expenses c) selling and administrative expenses d) product and period costs

b) variable and fixed expenses

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

b, c, & d

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 Direct Material + Direct Labor + Variable Manufacturing Overhead Costs $19 + $9 + $40 = $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 Reason: ($22 * 314 units) + $72,490 = $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 $_________.

$94304 Reason: $112 * 842 fans = $94304

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

Variable & Absorption

When calculating the profit impact of discontinuing a segment, consider ______. (Select all that apply) a) the segment's contribution margin b) the segment's traceable fixed costs c) common costs allocated to the segment

a & b

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

a) only traceable

Assigning common fixed costs to segments impacts ______. a) segment margin only b) both segment margin and total corporate profit c) total corporate profit only d) neither segment margin nor total corporate profit

a) segment margin only Reason: Total profit for the company includes common fixed costs.

GAAP and IFRS rules for publicly traded companies Blank______. (Select all that apply) a) create problems in reconciling internal and external reports b) require segmented financial data be included in annual reports c) create incentives for companies to use the contribution margin format in segment reporting d) require that the same method be used for both internal and external segment reporting

a, b, & d

Product costs under absorption costing include ______. (Select all that apply) a) direct labor b) variable manufacturing overhead c) fixed selling and administrative d) variable selling and administrative e) fixed manufacturing overhead f) direct materials

a, b, e, & f

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. a) $81.75 b) $58 c) $47 d) $70.75

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

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 ______. a) $250,000 b) $212,500 c) $116,667 d) $175,000

d) $175,000 Reason: $70,000 ÷ 40% = $175,000 Dollar Sales for segment to break even = Segment traceable fixed expenses / Segment 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

Only costs that would disappear over time if a segment disappeared should be treated as _______ fixed costs.

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 of a store is the ______ fixed cost of the store and the _______ fixed cost of each product line sold in the store.

traceable; fixed

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

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 ______. a) $1544.06 b) $6,472.14 c) $8016.20

b) $6472.14 Reason: $5.38 × 1,203 = $6,472.14

If a segment is entirely eliminated, common fixed costs will ______. a) decrease b) not change c) be eliminated

b) not change

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

b) only variable

When using absorption costing, fixed manufacturing overhead cost per unit = Total fixed manufacturing overhead cost divided by units: a) sold. b) produced. c) in ending inventory. d) (produced - units sold).

b) produced

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 or False

True Reason: All traceable costs should be assigned to segments when possible.

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

b & d

When a segment is eliminated, a ______. (Select all that apply) 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

Comfy Cozy Chairs makes and sells rockers. Each rocker requires $45 of direct materials and $37 of direct labor. Variable manufacturing overhead is $8 per unit, and fixed manufacturing overhead totals $58,000. Variable selling and administrative costs are $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 ______. a) $125 b) $119 c) $105 d) $90

b) $119 Reason: $45 + $37 + $8 + ($58,000 ÷ 2,000) = $119

When preparing a segment margin income statement: (Select all that apply) a) common fixed expenses are excluded from the statement. b) fixed manufacturing costs are included in cost of goods sold. c) cost of goods sold consists of only variable manufacturing costs. d) traceable fixed expenses are deducted from contribution margin.

c & d

Which of the following is NOT a common mistake made in preparing segmented income statements? a) Omitting costs that should be included. b) Using inappropriate allocations bases. c) Computing contribution margin instead of gross margin. d) Arbitrarily dividing common costs among segments.

c) Computing contribution margin instead of gross margin

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

c) fixed manufacturing overhead

The segment margin is obtained by deducting the ______ fixed costs of a segment from the segment's ______. a) traceable; revenues b) common; contribution margin c) traceable; contribution margin d) common; revenues

c) traceable; contribution margin

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.

common

An otherwise profitable segment may appear to be unprofitable if _________ fixed costs are allocated to it.

common

Financial statement users need to be aware of changes in inventory levels when using ________ costing.

absorption

Variable costing income statements separate _______ expenses from _______ expenses.

variable & fixed

Absorption costing treats fixed manufacturing overhead as a ______ cost. a) product b) period

a) product

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 _______ for the individual product lines made in the plant.

Traceable fixed cost to the plant and a common fixed cost

Absorption costing is Blank______. (Select all that apply) a) required by GAAP and IFRS b) used by most companies for both internal and external reports c) rarely used d) the preferred method for internal decision making

a & b b is only because its required by GAAP and IFRS

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 ______. a) $11,000 b) $6,000 c) $9,000 d) $5,000

a) $11,000 Reason: Increased online sales contribution margin ($100,000 × 10% ×$60,000 ÷ $100,000) is $6,000 + $5,000 saved from stopping catalog sales = $11,000.

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 ______. a) $124,020 b) $109,200 c) $144,690 d) $167,700

a) $124,020 Reason: ($140 + $19) × 780 quilts sold = $124,020

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. a) $155 b) $157 c) $152 d) $128

a) $155 Reason: $50 + $75 + $27 + ($30,000 ÷ 10,000) = $155 per unit

Why is CVP analysis more difficult when using absorption costing than when using variable costing? a) CVP analysis requires costs to be broken down between variable and fixed which is not done in absorption costing. b) Fixed manufacturing overhead is ignored when performing CVP analysis. c) CVP analysis requires costs to be broken down into product and period costs, which is not done in absorption costing. d) Selling and administrative costs are ignored when performing CVP analysis.

a) CVP analysis requires costs to be broken down between variable and fixed which is not done in absorption costing

In order to comply with GAAP and IFRS, the Blank______ costing method must be used for external reporting in the United States. a) absorption b) segmented c) variable

a) absorption Reason b is wrong: Segmented financial information must be included in the report, but the absorption costing method must be used. Reason c is wrong: Variable costing is not allowed under GAAP or IFRS.

The difference between reported net income on variable costing and absorption costing income statements is based on how ______. a) fixed overhead is accounted for b) cost classifications are defined c) the statements are formatted d) expenses are organized

a) fixed overhead is accounted for

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

a) higher than Reason "equal to" is wrong: The only time that net income under absorption costing could be equal to net income under variable costing is when there is no change in inventory. Reason "less than" is wrong: When inventory decreases, variable costing net income will be higher.

When units produced exceed units sold, net income will generally be _____ costing. a) higher under absorption costing than under variable b) the same under both absorption costing and variable c) higher under variable costing than under absorption

a) higher under absorption costing than under variable Reason: Occurs because some of the fixed manufacturing overhead of the period is deferred into inventories under absorption costing

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

a) increase Reason: When fixed costs are put on a per unit basis, it appears that the total cost will increase as the number of units increase.

A traceable fixed cost ______. a) is incurred because of the existence of the segment b) varies with the activity level in a particular segment c) will continue if the segment is discontinued d) supports the operations of more than one segment

a) is incurred because of the existence of the segment Reason it's not b: If a cost varies with the activity level, it is a variable cost rather than a fixed cost. Reason it's not c: A common cost will continue even if the segment is entirely eliminated. Reason it's not d: A common cost supports the operations of more than one segment.

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

a) may be prepared for activates at many levels in a company

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

a) pricing; drop

he segment margin is a valuable tool for assessing the long-run ______ of a segment. a) profitability b) revenue potential c) return on investment d) adaptability

a) profitability

U.S. GAAP and IFRS Blank______ publicly traded companies include segmented financial data prepared for external users that use the same methods used in internal segment reports. a) require b) recommend c) do not recommend

a) require

Because nonmanufacturing costs are not included as costs of a product, the use of _______ costing can lead to the omission of segment costs.

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