Chapter 7 Exam 3 Flashcards
(19 cards)
What are product costs?
Includes only those costs of production that vary with output.
What are product costs consisted of in variable costing?
Direct materials, direct labor and variable manufacturing overhead
What are product costs consisted of in absorption costing?
Direct materials, direct labor, variable manufacturing overhead and fixed manufacturing overhead.
What is the difference between variable costing and absorption costing?
Variable costing involves manufacturing costs that vary with output and absorption costs treats all manufacturing costs as product costs whether they are fixed or not.
What are considered period costs in variable costing?
Fixed manufacturing overhead, variable selling and administrative costs and fixed selling and administrative costs
What are considered period costs in absorption costing?
variable selling and administrative costs and fixed selling and administrative costs
What do you need to remember when computing product unit cost under absorption costing?
Add together the direct labor, direct materials and variable over head and add in the fixed overhead and divide by number of units produced. Then add together
What are traceable fixed costs?
Costs specific to a certain segment, would disappear if the segment itself disappears.
True of false? Common fixed costs should not be allocated?
True –> would not disappear if a segment disappears.
What are segment income statements good for?
It is the best gauge of the long run profitability of a segment
How to compute segment margin?
Sales revenue - variable costs = contribution margin - traceable fixed costs = segment margin
T/F? When common fixed costs are allocated, a
segment may look more profitable than what
they really are.
False –> will look less profitable
T/F? Absorption costing includes only variable costs when computing the cost per unit.
False
T/F? Under variable costing, variable production costs are not included in the product cost
False, they are included in product costs
T/F? Segment margin is a better measure of the long-run profitability of a segment than contribution
margin.
True
Under absorption costing, fixed manufacturing overhead
costs:
a. Are deferred in inventory when production exceeds sales.
b. Are always treated as period costs.
c. Are released from inventory when production exceeds
sales.
d. Are ignored.
A - are deferred in inventory when production exceeds sales.
How to find net operating income?
Add together the segment margins of a company then subtract the common fixed expenses to get net operating income.
How to find common fixed expenses not traceable to individual divisions?
Add together the two divisions segment margins and then subtract the net operating income
T/F? Common costs are expenses of the company that can’t be traced to a single segment
True
