Managerial Accounting: Chapter 6

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 $____.

68

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

Absorption

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

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

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

absorption

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

absorption

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

absorption

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

absorption

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

absorption

Fixed manufacturing overhead costs are included as part of Work in Process inventory under ______. absorption costing only variable costing only neither variable and absorption costing both variable and absorption costing

absorption costing only

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 __________ costing

absorption; variable

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

absorption; variable

Under absorption costing product costs consist of ______ costs. only fixed manufacturing all manufacturing and selling and administrative both variable and fixed manufacturing only variable manufacturing

both variable and fixed manufacturing

When a segment is eliminated, a ______. traceable fixed cost will remain unchanged common fixed cost will remain unchanged common fixed cost will disappear traceable fixed cost will disappear

common fixed cost will remain unchanged traceable fixed cost will disappear

Variable costing income statements are based upon a ______ format. contribution traditional product vs. period costs

contribution

When inventory increases, absorption costing net operating income is higher than variable costing net income due to the fixed manufacturing overhead ______. released to the cost of goods sold account on the income statement deferred in the inventory account on the balance sheet

deferred in the inventory account on the balance sheet

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

depreciation on equipment used to manufacture Corvettes

Product costs under absorption costing include ______.

direct labor direct materials fixed manufacturing overhead variable manufacturing overhead

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 selling and administrative expense fixed manufacturing overhead direct labor cost variable manufacturing overhead

fixed manufacturing overhead

Under variable costing the cost of a unit of inventory does not contain ______. direct labor direct materials fixed manufacturing overhead variable manufacturing overhead

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 is categorized by________, variable costing is categorized by. __________

function, behavior

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

inappropriately assigning traceable fixed costs arbitrarily allocating common fixed costs omitting costs that should be included

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

increase

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

is incurred because of the existence of the segment

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 strategy; produce reporting; add production; focus upon

pricing; drop

Absorption costing treats fixed manufacturing overhead as a ______ cost. product period

product

Assigning common fixed costs to segments impacts ______. neither segment margin nor total corporate profit segment margin only total corporate profit only both segment margin and total corporate profit

segment margin only

Costs that can be traced directly to a segment ______. should not be allocated to other segments should be allocated to all segments may be treated as common costs

should not be allocated to other segments

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

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

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

time when fixed overhead is expensed

An otherwise profitable segment may appear to be unprofitable if ________ fixed costs are allocated to it.

traceable

Only costs that would disappear over time if a segment disappeared should be treated as ____________ fixed costs.

traceable

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

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 ______ $212,500 $116,667 $250,000 $175,000

$175,000

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 ______. $81.75 $70.75 $47.00 $58.00

$47.00

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

Computing contribution margin instead of gross margin.

True or false: Absorption costing and variable costing always result in the same net operating income each year. True False

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

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

omission of upstream and downstream costs under-costing of segments

Segment break-even calculations include ______ fixed expenses. only common both traceable and common only traceable

only traceable

Variable costing treats fixed manufacturing overhead as a(n) _____________ cost.

period

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

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

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 of a store is the ___________ ,fixed cost of the store and the _______ fixed cost of each product line sold in the store.

traceable, common

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 of a store is the _____________ fixed cost of the store and the _____________ fixed cost of each product line sold in the store.

traceable, common

Direct costing or marginal costing are other terms for _________ costing.

variable

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

variable

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

variable

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

variable, absorption

For external reporting, income statements are generally prepared using _____________ costing, while ________________ costing is used for internal decision making purposes.

variable; absorption