BACC 222 Exam 2 - 7A

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

Absorption Variable

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

Absorption Variable

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

Both income statements include product and period costs. Reported net income on the statements often differ.

Why is CVP analysis more difficult when using absorption costing than when using variable costing?

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

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 administrative cost was $9 per unit and fixed selling and administrative 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 ______.

Reason: $42,000 + $59,000 = $101,000

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.

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

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 cost of goods sold equals ______.

Reason: $76.35 × 155 = $11,834.25

Absorption costing net income may be computed by multiplying the number of units sold by the contribution margin per unit and subtracting total fixed expenses.

Reason: False

Under absorption costing product costs consist of ______ costs.

both variable and fixed manufacturing

A variable costing income statement ______.

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

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

contribution margin fixed

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

contribution margin fixed

On an absorption costing income statement, selling and administrative expenses ______.

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

Absorption and variable costing net income are usually different due to the accounting for ______.

fixed manufacturing overhead

Absorption costing net operating income may not agree with the net operating income calculated for CVP analysis due to the way in which ______ is handled in absorption costing.

fixed manufacturing overhead

The difference between reported net income on variable costing and absorption costing income statements is based on how ______.

fixed overhead is accounted for

Absorption costing net income is calculated by subtracting selling and administrative expenses from _______ _________

gross margin

An absorption costing income statement calculates ______.

gross margin by deducting cost of goods sold from sales

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

increase

Variable costing treats ______ manufacturing costs as product costs.

only variable

Under both variable costing and absorption costing, variable and fixed selling and administrative costs are treated as ______ costs.

period

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

pricing drop

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

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

segment

A company's operations can be divided by product lines, geographical area, manufacturing plants, service centers, or sales territories, which are known as _______

segments

Selling and administrative expenses are ______ on both the absorption and variable costing income statements.

the same amount

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

$17,483

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

$17,483

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, and variable selling and administrative expense is $13 per frame sold. The company produces 5,000 units each month and total fixed manufacturing overhead cost per month is $15,000. The unit product cost of each frame using variable costing is $

$19 + $40 + $9 = $68

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

$19,700 + $9,290 = $28,990

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 and fixed manufacturing overhead cost is $19,000 in total. Variable selling and administrative costs are $11 per unit sold and fixed selling and administrative costs are $13,200. Last period, 800 gloves were produced, and 585 gloves were sold. The unit product cost using variable costing is ______ per unit.

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

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 ______.

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

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 ______.

$5.38 × 1,203 = $6,472.14

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 $

$72,490 + ($22 + 314) = $79,398

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

($1.05 × 1,203) + $4,500 = $5,763.15

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 ______.

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

Place the following line items in order to construct a contribution format income statement.

1. Sales 2. Variable expenses 3. Contribution margin 4. Fixed expenses 5. Net operating income

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 $

842 * $112 = $94,304

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 $

849 * $24 = $20,376

True or false: Under absorption 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.

True

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

absorption

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

absorption variable

costs are categorized by function when using ________ costing and by behavior when using _______ costing.

absorption variable

Selling and administrative expenses ______.

are always treated as period costs

When using absorption costing, fixed manufacturing overhead cost per unit = Total fixed manufacturing overhead divided by units ______.

units produced

Direct costing or marginal costing are other terms for ______ costing

variable

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

variable

Variable costing income statements separate _______ expenses from ________ expenses

variable fixed

The variable costing income statement separates ______.

variable and fixed expenses