ACCT202 HANSEN EXAM 2

Max, Inc., has two divisions, South Division and North Division. South Division's sales, contribution margin ratio, and traceable fixed expenses are $500,000, 60%, and $100,000 respectively. What is the segment margin for the South Division?

$200,000

Bovine Corporation has two divisions: televisions and mobile phones. The mobile phone division has a contribution margin of $600,000. The company's common fixed costs and total traceable fixed costs are $100,000 and $500,000 respectively. What is the segment margin of the mobile phone division, assuming the traceable fixed costs of the television division are $300,000?

$400,000

Organization-sustaining activity

Activities that are carried out regardless of which customers are served, which products are produced, how many batches are run, or how many units are made. EX: Use the general factory building, perform periodic preventative maintenance on general-use equipment, interview and process new employees in the personnel department.

Batch-level activities

Activities that are performed each time a batch of goods is handled or processed, regardless of how many units are in the batch. The amount of resource consumed depends on the number of batches run rather than on the number of units in the batch. EX: Receive raw materials from suppliers, issue purchase orders for a job.

Unit-level activities

Activities that are performed each time a unit is produced. EX: Do rough milling work on products.

Product-level activities

Activities that relate to specific products that must be carried out regardless of how many units are produced and sold or batches run. EX: Manage parts inventories, design new products.

Which of the following is an allocation base commonly used under the traditional methods for allocation of overhead costs?

Direct labor-hours The traditional methods relied on allocation bases such as direct labor-hours and machine-hours for allocating overhead costs to products.

True of False? The traditional absorption costing method assigns selling and administrative expenses to products.

False

True or False? It is necessary to compute an activity rate for the "Other" category of costs.

False An activity rate is not computed for the "Other" category of costs. This is because the Other cost pool consists of organization-sustaining costs and costs of idle capacity that are not allocated to products and customers.

True or False? The costs of direct materials and direct labor costs are allocated to cost objects using the first-stage allocation.

False Direct materials and direct labor are excluded from the overhead costs because the existing cost system can accurately trace direct materials and direct labor to products. There is no need to incorporate these direct costs in the activity-based allocations of indirect costs.

True or False? A true common fixed cost would disappear if a segment was entirely eliminated.

False Even if a segment were entirely eliminated, there would be no change in a true common fixed cost.

True or False? The traditional absorption costing method assigns selling and administrative expenses to products.

False In traditional costing methods, such as absorption costing, only manufacturing costs are assigned to products. Selling and administrative expenses are treated as period expenses and are not assigned to products.

True or False? In an ABC system, batch-level activities should be combined with unit-level activities.

False When combining activities in an ABC system, activities should be grouped together at the appropriate level. For example, batch-level activities should not be combined with unit-level activities or product-level activities.

True or False? When the units produced during a period are less than the units sold, the absorption costing net operating income will be more than the variable costing net operating income.

False When units produced are less than units sold, inventory decrease. As a result, net operating income is lower under absorption costing because fixed manufacturing overhead cost is released from inventory under absorption costing as inventory decrease. Under variable costing, just the fixed manufacturing overhead of the current period flows through to the income statement.

When we reconcile variable costing with absorption costing income, which costs must be considered?

Fixed manufacturing overhead

Which of the following is an example of a common fixed cost?

Salary of the CEO of Apple, Inc.

Segment break-even point

Traceable fixed expenses ÷ Segment contribution margin ratio

True or False? In activity-based costing, products are charged only for the costs of the capacity they use.

True

True or False? The activity rates are computed by dividing the total cost for each activity by its total activity.

True

True or False? The contribution approach income statement can be used for cost-volume-profit analysis because costs are separated as fixed and variable.

True

Activity-based costing accumulates costs for each ___________ .

activity Activity-based costing accumulates overhead costs for each activity and assigns the costs to products. Activity-based costs can be used to cost products, but the accumulation of the costs is by activity.

An example of a product-level activity is _____________ .

advertising Activities such as designing a product or advertising a product are product-level activities. Mailings would not likely be related to a particular product.

Activity-based costing estimates the costs of the resources consumed by_________ .

cost objects Activity-based costing estimates the costs of the resources consumed by cost objects. Cost drivers are the activities that cause costs.

We reconcile super-variable costing and variable costing income statements by considering _________.

direct labor costs The primary difference between super-variable costing net income and variable costing net income is the treatment of direct labor costs.

Compute a predetermined overhead rate.

dividing the total estimated manufacturing overhead cost for the period by the estimated total amount of the allocation base for the period as follows: The predetermined overhead rate is computed before the period begins using a four-step process. The first step is to estimate the total amount of the allocation base (the denominator) that will be required for next period's estimated level of production. The second step is to estimate the total fixed manufacturing overhead cost for the coming period and the variable manufacturing overhead cost per unit of the allocation base. The third step is to use the cost formula shown below to estimate the total manufacturing overhead cost (the numerator) for the coming period: Y = a + bX

When units produced are equal to units sold, the absorption costing net operating income is _____ the variable costing net operating income.

equal to

Activity-based costing uses the _________ process to divide overhead costs among activity cost pools.

first-stage allocation

When units produced exceed the units sold, the absorption costing net operating income is _____ the variable costing net operating income.

greater than When the units produced exceed the units sold, absorption costing net operating income will exceed variable costing net operating income, because fixed costs are deferred in ending inventory and will be expensed in the next period under absorption costing.

First-stage allocations are usually based on the results of ______ .

interviews with employees

Even when a manager is able to adjust the size of its labor force, the manager may view it as a fixed cost because ________.

it may hurt morale to treat it as a variable cost It may not be beneficial to reduce direct labor in a short-term downturn as it may reduce morale and may increase future training costs.

When the units produced are fewer than the units sold, the absorption costing net operating income is _____ the variable costing net operating income.

less than

The use of absorption costing for segmented income statements results in:

omission of upstream and downstream costs. Only manufacturing costs are included in product costs under absorption costing. Many companies also use absorption costing for their internal reports such as segmented income statements. As a result, such companies omit from their profitability analysis part or all of the "upstream" costs in the value chain and the "downstream" costs, which consist of marketing, distribution, and customer service.

Super-variable costing treats direct labor as a _________ cost.

period Super-variable costing only considers direct materials a product cost.