BUS 216 ch 6

traceable fixed cost to the plant and a common fixed cost

profitability

GAAP and IFRS rules ______.

require that the same method be used for both internal and external segment reporting create problems in reconciling internal and external reports require segmented financial data be included in annual reports

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

the same amount

An example of a traceable fixed cost for General Motors' Corvette Division is the ______.

depreciation cost on the equipment used to manufacture the Corvettes

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

gross margin

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

Blank 1: segment Blank 2: contribution

When allocating fixed manufacturing overhead cost to units under absorption costing, the total fixed overhead costs must be divided by the number of units . (Enter only one word per blank.)

produced, manufactured, made, or completed

When calculating the profit impact of discontinuing a segment, consider _____.

the segment's contribution margin the segment's traceable fixed costs

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.

Dollar break-even for a company is calculated as ______.

(Traceable fixed expenses + Common fixed expenses) ÷ Overall CM ratio

A company has two segments with total sales of $500,000 and total variable costs of $343,750. Traceable fixed expenses are $50,000 and common fixed expenses are $80,000. The break even in dollars for the company as a whole equals $

416,000

Absorption costing net income is calculated by subtracting selling and administrative expenses from . (Enter only one word per blank.)

Blank 1: gross Blank 2: margin or profit

True or false: Segment margin is most useful in decisions involving short-run changes in sales volume such as pricing special orders.

False

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(n) fixed cost for the store, and a(n) fixed cost for each product line sold in the store. (Enter only one word per blank.)

Traceable, common

Net income computed under ______ costing may not agree with the results of CVP analysis.

absorption

Costs are categorized by function when using costing and by behavior when using costing. (Enter only one word per blank)

absorption, variable

Under absorption costing product costs consist of ______.

both variable and fixed manufacturing costs

The segment margin represents the ______.

margin available after a segment has covered all of its own costs

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 a ______ for the individual product lines made in the plant.

traceable fixed cost to the plant and a common fixed cost

When a segment is eliminated, a ______.

traceable fixed cost will disappear common fixed cost will remain unchanged

Segment contribution margin equals segment revenue minus the expenses for the segment.

variable

The variable costing income statement separates ______.

variable and fixed expenses

An absorption costing income statement calculates ______.

Gross margin by deducting cost of goods sold from sales

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

One mistake companies make when preparing segmented income statements is arbitrarily assigning , fixed costs to segments

common

Absorption costing treats fixed manufacturing overhead as a ______ cost.

product

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

variable, absorption

When preparing a segment margin income statement ______.

cost of goods sold consists of only variable manufacturing costs traceable fixed expenses are deducted from contribution margin

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.