Chapter 6: Variable Costing & Segmented Reporting

Question 1

Variable Costing- Product

Answer 1

Direct Materials, Direct Labor, Variable MOH

Question 2

Variable Costing- Period

Answer 2

Fixed MOH, Variable Selling and Admin Expense, Fixed Selling and Admin Expense

Question 3

Absorption Costing- Product

Answer 3

Direct Materials, Direct Labor, Variable MOH, Fixed MOH

Question 4

Absorption Costing- Period

Answer 4

Variable Selling and Admin Expense, Fixed Selling and Admin Expense

Question 5

Price per Unit

Answer 5

Fixed MOH/ Units Produced

Question 6

All FMOH is expensed

Answer 6

immediately

Question 7

When Units produced=Units sold

Answer 7

No change in inventory, absorption income= variable income

Question 8

When Units produced > Units sold

Answer 8

Inventory increases, absorption income> variable income

HINT: More produced— more fixed costs

Question 9

When Units produced < Units sold

Answer 9

Inventory decreases, absorption income < variable income HINT: with less inventory, less fixed costs

Question 10

Segment

Answer 10

any part or activity of an organization about which a manager seeks revenue or profit data. Ex. Service center, individual store, sales territory.

Question 11

Segmented Income Statement uses what format __

Answer 11

Contribution Format- separates fixed/variable costs, enables the calculation of CM

Question 12

Common fixed costs

Answer 12

Arise because the overall operations of the company would not disappear if any particular segment were eliminated.

Question 13

Traceable fixed costs

Answer 13

Costs that their only reason for existence is that segment

Question 14

Traceable fixed costs of one segment may ___

Answer 14

be common fixed costs of another segment

Question 15

Segment Margin=

Answer 15

= Traceable FC of segment- C Margin

Question 16

Segment Margin is

Answer 16

the best gauge of the long term profitability of the segment

Question 17

Common costs should not be allocated

Answer 17

to individual segments

Question 18

Break-even point=

Answer 18

(traceable F/E + Common F/E) / CM Ratio

Question 19

CM ratio=

Answer 19

CM/Sales

Question 20

Segment-wide Breakeven Point=

Answer 20

traceable F/E / CM ratio (its own)

Question 21

Omission of Costs

Answer 21

costs assigned to a segment should include all costs attributable to that segment from the company’s entire value chain.

Question 22

Value Chain

Answer 22

R & D, Product Design, Manufacturing, Marketing, Distribution, Customer Service

Question 23

Reasons to not allocate fixed costs (2)

Answer 23

1. makes segments look unprofitable

2. managers held accountable for uncontrollable-s

Question 24

Both GAAP & IFRS require

Answer 24

segmented financial data and annual reporting

Question 25

Segmented Income Statement Format

Answer 25

``` Sales -Variable Expenses= CM -Traceable F.E.= Segment Margin -C. Fixed Expense= N. Operating Expense ```

Question 26

NOI (simplified)

Answer 26

``` Sales -COGS= GM -Selling and Admin= NOI ```

Question 27

Variable costing treats fixed manufacturing overhead as a product cost. T/F

Answer 27

False.

Question 28

Variable costing treats fixed manufacturing overhead as a period cost. T/F

Answer 28

True.

Question 29

Absorption costing treats fixed manufacturing overhead as a period cost. T/F

Answer 29

False.

Question 30

In absorption costing, variable manufacturing overhead costs flows through the inventory accounts on the balance sheet before being recorded as part of cost of goods sold on the income statement. T/F

Answer 30

True.

Question 31

When the units produced are greater than the units sold, absorption costing income will be greater than variable costing income because absorption costing defers some fixed manufacturing overhead cost in ending inventory whereas variable costing expenses each period’s fixed manufacturing overhead on the income statement. T/F

Answer 31

True.

Question 32

When the units produced are less than the units sold, absorption costing income will be less than variable costing income because absorption costing releases some fixed manufacturing overhead cost from ending inventory whereas variable costing expenses each period’s fixed manufacturing overhead on the income statement. T/F

Answer 32

True.

Question 33

When the units produced are greater than the units sold, absorption costing income will be greater than variable costing income because absorption costing defers some fixed manufacturing overhead cost in ending inventory whereas variable costing expenses each period’s fixed manufacturing overhead on the income statement. T/F

Answer 33

True.

Question 34

When the units produced < units sold, which of the following equations explains the difference between absorption costing and variable costing net operating income?

Answer 34

Number of units released from ending inventory × fixed manufacturing overhead cost per unit

Question 35

Dollar sales for company to break even = (Traceable fixed expenses + Common fixed expenses) ÷ Overall contribution margin (CM) ratio. T/F

Answer 35

True.