BUS 215 chapter 6

Dollar sales for a company to breakeven

(traceable fixed expenses + common fixed expenses) / overall CM ratio CM ratio = cm/total sales

If a segment is entirely eliminated, common fixed costs will _______

no change

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

period

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

produced

Absorption costing treats fixed manufacturing overhead as a Blank______ cost.

product

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

the same amount

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

variable, absorption

Using variable costing and the contribution approach for internal decision making

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

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

Product Costs (Variable Costing)

direct materials, direct labor, manufacturing overhead

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

An absorption costing income statement calculates

gross margin by deducting cost of goods sold from sales

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

gross, margin

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

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.

Costs are categorized by function when using _______, costing and by behavior when using ________

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________.

Absorption, Variable

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.

Which method will produce the highest values for work in process and finished goods inventory ? a. absorption costing b. variable costing c. they produce the same values these inventories d. it depends....

D but the book says A

Product Cost (Absorption Costing)

Direct labor, Direct Materials, Variable Manufacturing Overhead, fixed manufacturing overhead

The variable costing income statement separates

Fixed and Variable expenses

Period Costing ( Variable Costing )

Fixed manufacturing overhead, Variable selling and administrative expenses, Fixed selling and administrative expenses

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

Period Costing ( Absorption Costing )

Variable selling and administrative expenses and Fixed selling and administrative expenses

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

absorption

Under absorption costing product costs consist of

both variable and fixed manufacturing