Accounting Ch. 6 & 7

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Which help companies channel their resources into the most profitable growth opportunities?

Product and customer profitability reports

What is the benefit of a cross-functional team designing an ABC system:

Resistance to change is reduced

The most common reports prepared using ABC data are the product and customer _________ reports

The most common reports prepared using ABC data are the product and customer profitability reports

Variable Costing

The number of units produced does NOT affect net operating income when using _____ costing

Differences in net operating income between absorption costing and variable costing is due to:

The timing of when fixed manufacturing overhead is expensed

ABSORPTION COSTING and VARIABLE COSTING

The two general costing approaches used by manufacturing companies to prepare income statements are ________ Costing and ________ Costing

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 $ _____

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 = 20,376

Absorption Cosing

all production costs, variable and fixed, are included when determining unit product cost

Variable Costing

only the variable production costs are included in product costs

Common cost

A ____ cost will continue even if the segment is entirely eliminated

A link to how people are evaluated and rewarded

A characteristic essential for successful implementation of ABC is:

Activity-based management is focused on:

Activity-based management is focused on: *Eliminating waste *Reducing defects (Process improvements) (Decreasing processing time)

Administrating parts inventory is a ______-Level activity

Administrating parts inventory is a Product-Level activity

Power to run production equipment would be a ______-level activity

Power to run production equipment would be a UNIT-level activity

Variable Costing

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

Absorption costing only

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

Expensed as incurred under super-variable costing

Fixed overhead and direct labor are expensed as incurred under super-variable costing

Pearls! Manufactures and sells jewelry. The total variable cost of goods sold this month is $72,490. Variable selling and admin 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 $_____ Total variable cost =

(?)

Which are correct regarding income statements prepared under variable and absorption costing?

* Both income statements include product and period costs * Reported net income on the statement often differ (The difference is in how fixed manufacturing overhead is accounted for)

Using variable costing and the contribution approach for internal decision making:

* Supports Decision making * Enables CVP analysis * Facilities explaining changes in net income

Discontinuing a profitable segment results in:

* The loss of the segment's revenues * A reduction in the overall profits of the company (A segment's traceable fixed costs would be eliminated, but common fixed costs would not change)

Types of costs that might be included in a cost pool based on order size include:

*Factory Supplies *Equipment Depreciation

Absorption costing is:

*Used by most companies for both internal and external reports *Required by GAAP and IFRS

Benchmarking

A Systematic approach that can identify improvement opportunities is: Benchmarking

Traceable fixed cost

A ___ fixed cost is incurred because of the existence of the segment

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:

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 (If all three segments are at the beak-even point, common fixed expenses have not been covered) (Common fixed expenses are not considered when computing segment break-even)

A company's products had sales of $750,000 and total costs of $360,000. If the net operating income for the company was $215,000 total overhead costs not assigned to products was $________

A company's products had sales of $750,000 and total costs of $360,000. If the net operating income for the company was $215,000 total overhead costs not assigned to products was $ 175,000 750,000 - 360,000 = 390,000 390,000 - 215,000 = 175,000

A cost pool including costs to entertain clients and make sales calls is a _______-level activity

A cost pool including costs to entertain clients and make sales calls is a Customer-level activity

Segment

A part or activity within an organization about which managers would like cost, revenue or profit data is called a ____

Product Margin

A product's is a function of sales and the direct and indirect costs that the product causes

ABC does NOT conform to GAAP because it:

ABC does NOT conform to GAAP because it: *Excludes some manufacturing costs *Includes some nonmanufacturing costs

ABC is NOT used for external reporting because _______ would not be comfortable using allocation based on employee interviews

ABC is NOT used for external reporting because Auditors would not be comfortable using allocation based on employee interviews

ABC is generally used for ________ reporting

ABC is generally used for Internal reporting

Super-variable costing

ALL Direct Labor and Manufacturing Overhead is treated as fixed under:

Absorption costing and variable costing net operating will be equal when

Absorption costing and variable costing net operating income will be equal when: The number of units produced equals the number of units sold There is no beginning and no ending inventory

Absorption costing can lead managers to mistakenly believe that fixed manufacturing overhead costs will (increase or decrease) in total as the number of units produced increases.

Absorption costing can lead managers to mistakenly believe that fixed manufacturing overhead costs will INCREASE in total as the number of units produced increases.

Activities that occur regardless of which customers are served, which products are produced or how many batches are run or units are facility-level or _______ _______ activities

Activities that occur regardless of which customers are served, which products are produced or how many batches are run or units are facility-level or organization sustaining activities

Second-stage allocation

Activity rates are used to apply overhead costs to products and customers in the second-stage allocation

Activity-based costing is NOT used for external reporting because

Activity-based costing is NOT used for external reporting because *ABC would disclose too much info about individual products *External reports are less detailed than internal reports *It is difficult to make changes in the existing accounting system *ABC does not comply with GAAP

Activity-based costing only charges products for the cost of the capacity used because:

Activity-based costing only charges products for the cost of the capacity used because: *It results in a more stable unit product cost *Products are only assigned the costs of resources they actually use (Assigning costs of unused capacity would increase per unit product cost)

Activity-based costing system:

Activity-based costing system: *Produces different numbers that a traditional system *Is costly to maintain *Requires substantial resources *The benefits may or may not outweighs the cost

Period Expense

Activity-based costing treats organization-sustaining costs as _______ expenses

Activity-based costing uses more ____ ____ than traditional costing

Activity-based costing uses more cost pools than traditional costing

Activity-based costing uses numerous __________ cost pools

Activity-based costing uses numerous Overhead cost pools

Costs assigned and traced when computing product margin in a traditional cost system are:

Administrating parts inventory is a Product-Level activity Costs assigned and traced when computing product margin in a traditional cost system are: *Direct Labor *Manufacturing Overhead *Direct Material (Traditional costing systems include only manufacturing costs)

Advocates of __________ costing believe fixed costs are an essential part of product production

Advocates of absorption costing believe fixed costs are an essential part of product production

TRADTITIONAL costing system

All manufacturing costs are allocated to products in a _____ costing system regardless of whether the product consumers the resources associated with those costs.

All manufacturing costs are assigned to products in ________ costing

All manufacturing costs are assigned to products in traditional costing

Common Fixed Costs

Allocating ______ ______ ______ to a segment may cause an otherwise profitable segment to appear unprofitable.

An absorption costing income statement calculates:

An absorption costing income statement calculates: Gross margin by deducting cost of goods sold from sales Sales - COGS = Gross Margin

An activity cost pool accumulates costs for ____ ____ activity measure

An activity cost pool accumulates costs for exactly one activity measure

An activity-based costing system:

An activity-based costing system: *May exclude some manufacturing costs from product costs *Uses numerous overhead cost pools

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:

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.

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

Absorption Costing

Because this typw of costing assigns fixed manufacturing overhead costs to units produced, it gives the impression that fixed manufacturing overhead is variable with respect to the number of units produced, but it is not. The result can be inappropriate pricing decisions and product discontinuation decisions.

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 COGS equals: $________

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 COGS equals: $ 11,834.25 76.35 x 155 = 11,834.25

Blissful Breeze manufactures and sales ceiling fans. Variable selling and admin expenses is $11.50 per fan and fixed selling and admin expense is $7,800 per month. If blissful Breeze produces 900 fans and sells 842 fans this month, total selling and admin expenses will be $______

Blissful Breeze manufactures and sells ceiling fans. Each fan has a unit product cost of $112 and a unit selling price of $190. If it produces 900 fans and sells 842 fans this month the total cost of goods SOLD will be: Total COGS = $______

From a decision-making point of view, ______ margin is most capacity decisions and ______ margin is most useful for short-term sales volume decisions.

From a decision-making point of view, Segment margin is most capacity decisions and Contribution margin is most useful for short-term sales volume decisions.

Citrus Scents produces body sprays. Variable selling and admin expense is $1.05 per bottle and fixed selling and admin expense is $4,500 per month. The company produced 1,490 bottles this month and sold 1,203 of those bottles. Total selling and admin expense for the month was: $________

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 admin costs amont to $15 per unit and fixed selling and admin costs totaled $102,000. During the period, 2,000 rockers were produced and 1,640 were sold. The unit product cost using absorption coasting is: $___

Compared to traditional systems, activity-based costing uses ______ cost pools and unique measures of activity

Compared to traditional systems, activity-based costing uses MORE cost pools and unique measures of activity

Direct Materials

Considered variable under super-variable costing:

Contribution format Income Statement Order Sales Variable Expenses Contribution Margin Fixed Expenses Net Operating Income

Contribution margin computed using super-variable costing will be HIGHER than the contribution margin computed using traditional variable costing

Contribution margin computed using super-variable costing will be ______ than the contribution margin computed using traditional variable costing

Cost allocation

Cost allocation does not impact the net income of the company as a whole Inappropriately discontinuing segments can lead to common costs not being covered

Costs should be allocated to segments for internal decision-making purposes:

Costs should be allocated to segments for internal decision-making purposes: Only when the allocation base actually drives the cost being allocated

Costs such as factory supplies and power to run machines could be combined in a cost pool based on the number of: _________ _________

Costs such as factory supplies and power to run machines could be combined in a cost pool based on the number of: UNITS PRODUCED

Costs that can be easily traced to individual products include

Costs that can be easily traced to individual products include *Warranty repair costs *Shipping costs *Sales commission

Costs that can be traced directly to a segment: Should NOT be allocated to other segments

Customer cost analysis using time-driven activity-based costing (TDABC):

Customer cost analysis using time-driven activity-based costing (TDABC): *Used estimates based on practical capacity *Assists with measuring customer profitability

Customer service employees are a ____-____ cost

Customer service employees are a STEP-FIXED cost

Customer-level activities include:

Customer-level activities include: *Mailing Catalogs *Sales Calls

Decision-making problems that could occur when using absorption costing include inappropriate ______ decisions, and decisions made to ______ products that are in fact profitable

Decision-making problems that could occur when using absorption costing include inappropriate PRICING decisions, and decisions made to DROP products that are in fact profitable

Designing and advertising a product are ________-level activities

Designing and advertising a product are product-level activities

Variable Costing

Direct costing or marginal costing are other terms for ______ costing

Discontinuing a profitable segment results in:

Discontinuing a profitable segment results in: * A reduction in the overall profits of the company * The loss of the segment's revenues (NOT THIS ONE>) Reduced common fixed costs for the company (A segment's traceable fixed costs would be eliminated, but common fixed costs would not change)

Dollar break-even for a company is calculated as:

Dollar break-even for a company is calculated as: (Traceable fixed expenses + Common fixed expenses) / Overall CM Ratio

External reports are ______ (more/less) detailed than internal reports

External reports are LESS (more/less) detailed than internal reports

Granny's Touch manufactures and sells cookbooks. The company's variable cost of goods sold is $39,200 and variable selling and administrative expenses is $6,200. Fixed manufacturing overhead is $19,700 and fixed selling and admin expense is $9,290. An income statement prepared using variable costing shows $______ as the total fixed expenses.

If a segment is eliminated, ___________ __________ costs that are NOT traced to the segment will not change

If a segment is eliminated, COMMON FIXED costs that are NOT traced to the segment will not change

If the activity rate for the customer order cost pool is $250 per order and the total for this cost pool is $425,000 the total number of customer orders is:

If the activity rate for the customer order cost pool is $250 per order and the total for this cost pool is $425,000 the total number of customer orders is: 1,700 425,000 / 250 = 1700

If the activity rate is $65 per order with a total of 120 orders for a product the overhead cost assigned to the product is $______

If the activity rate is $65 per order with a total of 120 orders for a product the overhead cost assigned to the product is $ 7,800 65 x 120 = 7,800

In ABC any event that causes consumption of overhead resources is an _______

In ABC any event that causes consumption of overhead resources is an ACTIVITY

An Allocation Base

In activity-based costing an activity measure is:

In activity-based costing another term for activity measure is ______ ______

In activity-based costing another term for activity measure is COST DRIVER

In activity-based costing first state allocation assigns ___________ costs to activity cost pools

In activity-based costing first state allocation assigns Overhead costs to activity cost pools

In activity-based costing first-stage allocation assigns _________ costs to activity cost pools.

In activity-based costing first-stage allocation assigns overhead costs to activity cost pools.

In activity-based costing nonmanufacturing and manufacturing costs are assigned to products on a _____ AND ______ basis

In activity-based costing nonmanufacturing and manufacturing costs are assigned to products on a cause and effect basis

In recent years direct labor as a percentage of total cost began declining, which caused overhead to ________

In recent years direct labor as a percentage of total cost began declining, which caused overhead to increase

In the 19th and 20th centuries, cost systems relied on allocation bases such as:

In the 19th and 20th centuries, cost systems relied on allocation bases such as: *Machine hours *Labor hours

In the 19th and 20th centuries:

In the 19th and 20th centuries: Direct labor hours was a satisfactory overhead allocation base

In trading costing ________ costs are assigned to products

In trading costing manufacturing costs are assigned to products

Incorrectly or arbitrarily assigning common costs to segments:

Incorrectly or arbitrarily assigning common costs to segments: * Could reduce the overall profits of the company (if segments are inappropriately eliminated) * Distorts the profitability of segments * Holds managers responsible for costs they cannot control

Variable Costing

It correctly identifies the additional variable costs incurred to make one more unit. It also emphasized the impact of total fixed costs on profits

Limitations of activity-based costing systems:

Limitations of activity-based costing systems: *ABC requires substantial resources *Managers and employees may resist the change to ABC *ABC procedures produce numbers that do not match traditional costing (The benefits of accuracy may Not outweigh the costs)

When units produced exceed units sold, net income will generally be:

Net income will generally be Higher under absorption costing than under variable costing

On an absorption costing income statement, selling and administrative expenses:

On an absorption costing income statement, selling and administrative expenses: *Are reported as one single amount *Equal the amounts reported on a variable costing income statement

To assist in first-stage allocation in ABC employees designated as indirect factory workers should provide the:

Percentage of employee time spent for each activity period

Place the steps for implementing ABC in order: Define activities, activity cost pools, and activity measures Assign overhead costs to activity cost pools Calculate activity rates Assign overhead costs to cost objects Prepare management reports

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% or 0.10. Discontinuing Catalog sales should increase company profits by: $__________

A customer relations cost pool would include the cost of:

Sales calls

ONLY Traceable fixed expenses

Segment break-even calculations include:

Setting up equipment, placing purchase orders, and arranging shipments to customers are all examples of ______-level activities

Setting up equipment, placing purchase orders, and arranging shipments to customers are all examples of batch-level activities

Transaction Drivers

Simple counts of the number of times an activity occurs are TRANSACTION drivers

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 admin cost was $9 per unit and fixed selling and Admin 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: $________

Activity-based costing

Some manufacturing costs may be excluded from product costs when using

Strengths of Time-driven activity-based costing (TDABC):

Strengths of Time-driven activity-based costing (TDABC): *It is easy to update *It helps eliminate the financial impact of aligning capacity with demand *Employees do not have to self-report idle time

Equals units sold

Super-variable costing and Variable costing will: Report the same net operating income when units produced ______ units sold

Exceed units sold

Super-variable costing will have higher net operating income than variable costing when units produced: ________ units sold

Are LESS than units sold

Super-variable costing will have lower net operating income than variable costing when units are produced: Are ________ than units sold

The segment margin equals the segment's contribution margin less the segment's _____ Fixed Costs

TRACEABLE FIXED COSTS

Taking customer orders, processing orders and shipping orders are included In a ______-level cost pool

Taking customer orders, processing orders and shipping orders are included In a batch-level cost pool

The MOST common management reports using ABC data are: ______ Profitability and ______ Profitability

The MOST common management reports using ABC data are: Customer Profitability and Product Profitability

The activity rate for the Customer Orders activity pool is $20 per order. If there are 400 customer orders for a product, the total overhead cost assigned to this product for customer orders is $____

The activity rate for the Customer Orders activity pool is $20 per order. If there are 400 customer orders for a product, the total overhead cost assigned to this product for customer orders is $8,000 400 x 20 = 8000

Duration Driver

The amount of time required to perform an activity is measured by a _______ Driver

The customer orders cost pool uses 25% of indirect factory wages. If total indirect factory wages are $500,000 the amount allocated to this cost pool in the first-stage allocation is: $______

The customer orders cost pool uses 25% of indirect factory wages. If total indirect factory wages are $500,000 the amount allocated to this cost pool in the first-stage allocation is: $125,000 500,000 x 0.25 = 125,000

The first major step with implementing an ABC system is:

The first major step with implementing an ABC system is: identify the activities

MACHINE HOURS

The most appropriate activity measure for a cost pool consisting of equipment depreciation and power to run machines is _______ _______

The most appropriate activity measure for a cost pool consisting of the costs of resources consumed taking and processing individual consumer sales is the number of:

The most appropriate activity measure for a cost pool consisting of the costs of resources consumed taking and processing individual consumer sales is the number of: Customer Orders

The most common reports prepared using ABC data are the product and _________ ________ _________

The most common reports prepared using ABC data are the product and customer Profitability reports

The use of absorption costing can lead to the omission of segment costs because nonmanufacturing costs are NOT included as cost of a product. Calculate the Unit Product Cost under absorption costing: $____ Direct Materials: $50 per unit Direct Labor: $75 per unit Var manuf. Overhead: $27 per unit Fixed manuf. Overhead: $30,000 Units produced: 10,000 Units sold: 6,000

The use of absorption costing can lead to the omission of segment costs because nonmanufacturing costs are NOT included as cost of a product. Calculate the Unit Product Cost under absorption costing: $ 155 Direct Materials: $50 per unit Direct Labor: $75 per unit Var manuf. Overhead: $27 per unit Fixed manuf. Overhead: $30,000 Units produced: 10,000 Units sold: 6,000 50 + 75 + 27 + (30,000 / 10,000) = 155

Time-driven activity-based costing (TDABC) performs _______ Analysis to evaluate employee idle time

Time-driven activity-based costing (TDABC) performs Capacity Analysis to evaluate employee idle time

Time-driven activity-based costing (TDABC):

Time-driven activity-based costing (TDABC): *Does Not assume employees will self-report idle time *Overcomes some important limitations of ABC (Does NOT require extensive interviews with employees)

Total cost of each activity divided by the total activity is the computation of: _______ _______

Total cost of each activity divided by the total activity is the computation of: Activity Rates

Total estimate manufacturing overhead is $900,000 and total estimated activity is 30,000 machine-hours. The plantwide overhead rate is $__ per machine hour

Total estimate manufacturing overhead is $900,000 and total estimated activity is 30,000 machine-hours. The plantwide overhead rate is $ 30 per machine hour 900,000 / 30,000 = 30

Variable

Treating direct labor costs as _____ can lead to bad decisions

Under Activity-Based Costing overhead includes:

Under Activity-Based Costing overhead includes: All Indirect Costs

Absorption Costing

Under ________ costing, fixed overhead is treated like a variable cost because a portion of the total cost is allocated to each unit produced, rather than being expensed as one large sum

Under both variable costing and absorption costing, variable and fixed selling and admin costs are treated as _____ costs

Under both variable costing and absorption costing, variable and fixed selling and admin costs are treated as PERIOD costs

Using absorption costing for segmented income statements can lead to:

Under-costing of segments Omission of upstream and downstream costs

Unit-level activities are: proportional to the number of units produced

Unit-level activities are: proportional to the number of units produced. In ABC the greater the number of activities the: *More accurate the costs are likely to be *More costly the system will be to design (More activities make a system more complex)

Usually, traditional costing _____-costs high-volume products and _____-costs low-volume products

Usually, traditional costing OVER-costs high-volume products and UNDER-costs low-volume products

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

Variable costing net income may be computed by multiplying the number of units sold by the CONTRIBUTION MARGIN per unit and subtracting total FIXED expenses

Variable costing treats fixed manufacturing overhead as a PERIOD cost

Variable costing treats fixed manufacturing overhead as a _______ cost

Period Cost

Variable costing treats fixed manufacturing overhead as a:

What causes traditional and activity-based costing systems to report different product margins?

What causes traditional and activity-based costing systems to report different product margins? *Traditional costing systems allocate all of the manufacturing overhead costs to products using a volume-related allocation base *The ABC system assigns nonmanufacturing overhead costs to products on a cause and effect basis as appropriate *The traditional cost system allocate all manufacturing overhead costs to products

What is the total amount of indirect factory wages if the amount allocated to product design was $200,000 and product design consumes 40% of indirect factory wages? $_______

What is the total amount of indirect factory wages if the amount allocated to product design was $200,000 and product design consumes 40% of indirect factory wages? $500,000 200,000 / 0.4 = $ 500,000

What level of activity is performed each time an item of a product is produced

What level of activity is performed each time an item of a product is produced Unit-level

When a segment is eliminated, a:

When a segment is eliminated, a: Common fixed cost will remain unchanged Traceable fixed cost will disappear

Units PRODUCED

When allocating fixed manufacturing overhead cost to units under absorption costing, the total fixed overhead costs must be divided by the number of units _____________

Net operating income is LESS under absorption costing than under variable costing when inventory for the period: (Increase, Decrease, Same)

When inventory for the period: Decreases

Absorption Costing Method

When inventory increases, which costing method generally results in higher net income

When making decisions using ABC data:

When making decisions using ABC data: Unavoidable fixed costs should be ignored

When managers allocate organizational-sustaining and unused capacity costs to products:

When managers allocate organizational-sustaining and unused capacity costs to products: Costs will be overstated Incorrect decisions may be made (Product margins will be understated)

When preparing a contribution margin income statement:

When preparing a contribution margin income statement: * Variable and fixed costs ae listed in separate sections of the statement * COGS consists of only variable manufacturing costs

When using the absorption costing, fixed manufacturing cost per unit = Total Fixed Manufacturing Overhead divided by: ______ _______

When using the absorption costing, fixed manufacturing cost per unit = Total Fixed Manufacturing Overhead divided by: units produced

Absorption Costing

Which Method will produce the highest values for work in progress and finished goods inventories

Which are inventoriable costs under super-variable costing?

Which are inventoriable costs under super-variable costing? * Variable overhead * Direct materials

Which are the same under both ABC and traditional costing:

Which are the same under both ABC and traditional costing: *Total Sales *Net operating income *Total costs

Which costing system assigns nonmanufacturing overhead on a cause and effect basis:

Which costing system assigns nonmanufacturing overhead on a cause and effect basis: ABC

Which might be included in a customer relations cost pool?

Which might be included in a customer relations cost pool? *Customer entertainment *Cost of sales calls (Customer orders and machine set ups are batch-level costs)

Absorption Costing Income

is influenced by changes in unit sales and units of production. Net operating income can be increased simply by producing more units even if those units are NOT sold.

Variable Costing Income

is only affected by changes in unit sales. It is not affected by the number of units produced. As a general rule, when sales go up, net operating income goes up, and vice versa

Accounting Ch. 6 & 7

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