Acct. ch 6 WWU

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

segement

When there is no change in inventory, net operating income will be

the same under both absorption costing + variable costing

The segment margin equals the segments contribution margin less the segments _______ fixed cost

traceable

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

units produced

Absorption costing

used by most companies for both internal + external reports, REQUIRED BY GAAP + IFRS

The # of units produced does not affect net operating income when using ______ costing.

variable

Variable

variable + fixed

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

Reported net income on the statements often differ, both income statements include product + period costs.

GAAP rules + IFRS Rules:

Required segmented financial data to be included in annual reports, create problems in reconciling internal + external reports, require that the same method be used for both internal + external segment reporting.

The segment margin equals the segment contribution margin less the segments ______ fixed costs.

Traceable

two general costing approaches used by manufacturing companies to prepare income statements are _____ costing and ______ costing.

Variable + absorption

The use of _____ costing can lead to the omission of segment costs because nonmanufacturing costs are not included as costs of a product.

absorption

Common mistakes made by companies when assigning costs to segments include:

inappropriately assigning traceable fixed costs, arbitrarily allocating common fixed costs, omitting costs that should be included.

Absorption -

manufacturing + selling + administrative

Using absorption costing for segmented income statements can lead to

omission of upstream + downstream costs, under-costing of segments.

Segment break-even calculations include

only traceable fixed expenses

Variable costing treats fixed manufacturing overhead as a ____ cost.

period

Decision making problems that could occur when using absorption costing include inappropriate ______ decisions + decisions made to _____ products that are in fact profitable.

pricing, drop

line Item order to construct a contribution format income statement

sales, variable expense, contribution margin, fixed expenses, net operating income.

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

Absorption costing

A variable costing income statement:

Calculates contribution margin while the absorption costing income statement calculates gross margin, focuses on fixed + variable expenses, while an absorption costing income statement focuses on period + product costs.

If segment is eliminated _____ fixed costs that are not traced to the segment will not change.

Common

incorrectly or arbitrarily assigning common costs to segments:

Holds managers responsible for costs they cannot control, could reduce the overall profits of the company, distorts the profitability of segments.

A segment should be discontinued when the segment

cannot cover its own costs, has a contribution margin that cannot cover traceable fixed costs.

When preparing a contribution margin income statement

costs of goods sold consists of only variable manufacturing costs, variable + 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

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

Example of a traceable fixed cost for general motors corvette division is the

depreciation cost on the equipment used to manufacture the corvettes.

Product costs under absorption costing are

direct labor, direct materials, variable manufacturing overhead, fixed manufacturing overhead.

On an absorption costing income statement selling + administrative expenses

equal the amounts reported on a variable costing income statement, are reported as a single amount.

Using variable costing + the contribution approach for internal decision making

facilitates explaining changes in net income, enables CVP analysis, supports decision making.

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

fixed manufacturing overhead

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

higher under absorption costing than under variable costing