Chapter 6 Smartbook Assignment

Absorption

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

Absorption costing only

Fixed manufacturing overhead costs are included as part of Work In Process inventory under

Not change

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

Deferred in the inventory account on the balance sheet

When inventory increases, absorption costing net operating income is higher than variable costing net income due to the fixed manufacturing overhead ____

Segment

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

Higher than

When units sold exceed units produced, net income under variable costing will generally be ___ net income under absorption costing

Computing contribution margin instead of gross margin

Which of the following is NOT a common mistake made in preparing segmented income statements? -Using inappropriate allocations bases. -Computing contribution margin instead of gross margin. -Arbitrarily dividing common costs among segments. -Omitting costs that should be included.

Fixed manufacturing overhead

Under variable costing the cost of a unit of inventory does not contain ___

$416,000 CM ratio = (sales - variable costs) / sales = (500,000 - 343,750) / 500,000 =(Traceable fixed expenses + common fixed costs) / CM ratio =(50,000 + 80,000) / .3125

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 $

Segments

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

Absorption

Because nonmanufacturing costs are not included as costs of a product, the use of ___ costing can lead to the omission of segment costs

$11,834.25 Total cost of goods sold = Unit product cost * units sold 76.35 * 155

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

$11,834.25 Total cost of goods sold = Unit product cost * units sold =76.35 * 155

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

$119 Unit product cost using absorption costing = Direct materials + direct labor + variable MO + (fixed MO / units produced) =45 + 37 + 8 + (58,000 / 2,000)

Comfy Cozy Chairs makes rockers that require $45 of direct materials and $37 of direct labor. Variable manufacturing overhead is $8 per rocker, and fixed manufacturing overhead totals $58,000. Variable selling and administrative costs are $15 per rocker, 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

-Omitting costs that should be included -Inappropriately assigning traceable fixed costs -Arbitrarily allocating common fixed costs

Common mistakes made by companies when assigning costs to segments include -inappropriately assigning traceable fixed costs -arbitrarily allocating common fixed costs -inappropriately allocating variable costs -omitting costs that should be included

Should not be allocated to other segments

Costs that can be traced directly to a segment ___

Variable

Direct costing or marginal costing are other terms for ___ costing

Decreases

Net operating income is less under absorption costing than under variable costing when inventory for the period ___

Only traceable

Segment break-even calculations include ___ fixed expenses

$124,020 Total variable expenses = (variable manufacturing costs per unit + variable selling and admin costs per unit) * units sold (140 + 19) * 780

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. Total variable expenses reported on Quaint Quilt's variable costing income statement for the quarter is

Both variable and fixed manufacturing

Under absorption costing product costs consist of ___

True

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

Period

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

True

A cost that can be traced directly to a specific segment should be charged directly to that segment and not allocated to other segments

Increase

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

False

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

Product

Absorption costing treats fixed manufacturing overhead as a ___ cost

(Traceable fixed expenses + common fixed expenses / Overall CM ratio

Dollar break-even for a company is calculated as ___

$155 Unit product cost under absorption costing = Direct materials + direct labor + variable MO = (fixed MO / units produced) =50 + 75 + 27 + (30,000/10,000)

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 total Units: 10,000 produced and 6,000 sold

$175,000 Break-even point in dollar sales for a segment = Traceable fixed expenses / CM ratio =$70,000 / 40%

JPL Company has two segments - Retail and Commercial. The Retail segment has a contribution margin ratio of 40% and traceable fixed expenses of $70,000. Commercial has traceable fixed expenses of $50,000 and a contribution margin ratio of 55%. The company also has $30,000 of common fixed expenses. The break-even point in dollar sales for the Retail segment equals

-Are reported as a single amount -Equal the amounts reported on a variable costing income statement

On an absorption costing income statement, selling and administrative expenses ___ -Are reported as a single amount -Are separated into fixed and variable components -Equal the amounts reported on a variable costing income statement -Are reported exactly the same way as on a variable costing income statement

Traceable fixed costs from its contribution margin

Segment margin is obtained by deducting each segment's ___

$101,000 Total fixed expenses = Fixed MO + Fixed selling and admin expenses =42,000 + 59,000

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

Higher than

The company-wide break-even sales will always be ___ the sum of the segment break-even sales

Time when fixed overhead is expensed

The difference in net operating income between absorption costing and variable costing is due to the ___

Contribution

Variable costing income statements are based upon a ___ format

Internal income statements are generally prepared using variable costing and external income statements are generally prepared using absorption costing

Which of the following statement is correct? -Internal income statements are generally prepared using absorption costing and external income statements are generally prepared using variable costing -Internal income statements are generally prepared using variable costing and external income statements are generally prepared using absorption costing -Both internal and external income statements are generally prepared using variable costing -Both internal and external income statements are generally prepared using absorption costing

$68 Unit product cost = Direct materials + direct labor + variable MO 19 + 40 + 9

Frames, Inc. picture frames each require $19 of direct materials and $40 of direct labor. Variable manufacturing overhead cost is $9 per frame and variable selling and administrative expense is $13 per frame sold. Total fixed manufacturing overhead cost per month is $15,000 and the company produces 5,000 frames each month. The unit product cost of each frame using variable costing is $

$47.00 Unit product cost under variable costing = Direct materials + direct labor + variable MO 22 + 18 + 7 = 47

Put'er There manufactures baseball gloves that require $22 of direct materials and $18 of direct labor. Variable manufacturing overhead cost is $7 per glove 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

-Absorption costing net income is equal to variable costing net income -All fixed overhead incurred flows to the income statement under both costing methods

When the number of units produced equals the number of units sold ___ -Absorption costing net income is equal to variable costing net income -All fixed overhead incurred flows to the income statement under both costing methods -Absorption costing total expense is higher than variable costing total expense -Absorption costing total expense is lower than variable costing total expense

Common

A fixed cost that supports the operations of more than one segment, but is not traceable in whole or part to any one segment is a ___ fixed Cost

$11,000 Avoidance of the Catalog Sales segment loss $5,000 Online sales CM margin = (60,000 / 100,000) = 60% Increase in sales = 10,000 (100,000 x 10%) Online sales segment CM = (10,000 * 60%) = $6,000 Avoidance of the Catalog Sales segment loss $5,000 Increase in Online Sales Contribution Margin $6,000 Increase in SPS products Net operating income $11,000

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

May be prepared for activities at many levels in a company

Segmented income statements___ -may be prepared for the various departments in the company, but not for specific product lines -may be prepared for activities at many levels in a company -should only be used for profit centers -are best used to determine which locations are profitable, rather than which product lines are profitable

-Traceable fixed expenses are deducted from contribution margin -Cost of goods sold consists of only variable manufacturing ocsts

When preparing a segment margin income statement -common fixed expenses are excluded from the statement -traceable fixed expenses are deducted from contribution margin -fixed manufacturing costs are included in cost of goods sold -cost of goods sold consists of only variable manufacturing costs

The same under both absorption and variable

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

Higher under absorption costing than under variable

When units produced exceed units sold, net income will generally be___ costing

-Variable costing emphasizes the impact of fixed costs on profit -Absorption costing makes fixed costs appear to be variable

Which of the following statements are correct? -Absorption costing makes fixed costs appear to be variable -Variable costing emphasizes the impact of fixed costs on profit -Both variable and absorption costing correctly identifies the additional fixed costs incurred to make one more unit -Both variable and absorption costing correctly identifies the additional variable costs incurred to make one more unit.

Has an overall net operating loss of $10,000

A company with three segments has $10,000 in common fixed expenses. All three segments are at the break-even point. As a result, the company

-Cannot cover its own costs -Has a contribution margin that cannot cover traceable fixed costs

A segment should probably be dropped when the segment ___ -has a positive segment margin but cannot cover any common fixed costs -cannot cover its own costs -has important side effects on other segments -has a contribution margin that cannot cover traceable fixed costs

Is incurred because of the existence of the segment

A traceable fixed cost___ -is incurred because of the existence of the segment -will continue if the segment is discontinued -varies with the activity level in a particular segment -supports the operations of more than one segment

Gross margin by deducting cost of goods from sales

An absorption costing income statement calculates -Net income by deducting fixed costs from contribution margin -Contribution margin by deducting variable costs from sales -Net income by deducting selling and admin costs from contribution margin -Gross margin by deducting cost of goods sold from sales

The same amount

Selling and admin expenses are ___ on both the absorption and variable costing income statements

Are always treated as period costs

Selling and administrative expenses ___ -Are always treated as period costs -Are treated as period costs under variable costing only -May be treated as either product or period costs -Are treated as period costs under absorption costing only

profitability

The segment margin is the best gauge for assessing the long-run ___ of a segment

Only work when using variable

The target profit predicted by CVP analysis will ___ costing

Depreciation on equipment used to manufacture corvettes

An example of a traceable fixed cost for General Motors' Corvette Division is the ___ -direct materials used in the production of the Corvettes -depreciation on equipment used to manufacture Corvettes -salary of the General Motors Chief Executive Officer -utilities cost of the General Motors corporate headquarters

$94,304 Total cost of goods sold = Unit product cost * Units sold 112 * 842

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 $

$17,483 Total selling and admin expenses = (variable selling and admin exp x units sold) + fixed selling and admin expenses (11.50 * 842) + 7,800

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 $

$6,472.14 Cost of goods sold = Unit product cost * Units produced $5.38 * 1,203

Citrus Scents produces body sprays. Each bottle has a unit product cost of $5.38. This month, 1,490 bottles were produced and 1,203 bottles were sold. Total cost of goods sold is ___

$5,763.15 Total selling and admin expenses = variable selling and admin expenses * units sold + fixed selling and admin expenses =1.05 * 1,203 + 4,500

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. If 1,490 bottles are produced and 1,203 are sold in July, total selling and administrative expense for the month will be

Variable and Absorption

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

Probably be dropped

When a segment cannot cover is own costs, that segment should ___

-Omission of upstream and downstream costs -Under-costing of segments

Using absorption costing for segmented income statements can lead to -omission of upstream and downstream costs -under-costing of segments -the need to maintain two costing systems -inconsistencies between internal and external reports

Contribution margin and fixed expenses

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

$17,483 Total selling and admin expenses = Variable selling and admin exp x units sold + fixed selling and admin expenses =(11.50 * 842) + 7,800

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 $

-The segment's traceable fixed costs -The segment's contribution margin

When calculating the profit impact of discontinuing a segment, consider ___ -the segment's traceable fixed costs -the segment's contribution margin -common costs allocated to the segment

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

Which of the following statements are correct regarding income statements prepared under variable and absorption costing? -Both income statements include produce and period costs -Absorption costing categorizes costs based on cost behavior -The difference between statements is how total manufacturing overhead is accounted for -Reported net income on the statements often differ