Question 1

The unit product cost under absorption costing does not include fixed manufacturing overhead cost.

Accepted Answer

The unit product cost under absorption costing includes both variable and fixed manufacturing overhead costs.

Question 2

Absorption costing is more compatible with cost-volume-profit analysis than is variable costing.

Accepted Answer

Absorption costing includes fixed manufacturing overhead in product costs, which can distort cost-volume-profit analysis. Variable costing, which treats fixed overhead as a period expense, aligns better with cost-volume-profit analysis.

Question 3

When production is less than sales for the period,absorption costing net operating income will generally be less than variable costing net operating income.

Accepted Answer

Absorption costing includes fixed overhead costs in product costs, whereas variable costing only includes variable costs. Therefore, if production is less than sales for the period, there will be underutilized fixed overhead costs in absorption costing that will lower net operating income compared to variable costing.

Question 4

The contribution margin tells us what happens to profits as volume changes if a segment's capacity and fixed costs change as well.

Accepted Answer

The contribution margin indicates how much revenue from sales contributes to covering fixed costs after variable costs are deducted, assuming fixed costs remain constant.

Question 5

Contribution margin and segment margin mean the same thing.

Accepted Answer

Contribution margin refers to the amount by which sales revenue exceeds variable costs, while segment margin refers to the profit generated by a particular segment of a company's operations. While both terms relate to profitability, they measure slightly different aspects of a business's financial performance.

Question 6

Only those costs that would disappear over time if a segment were eliminated should be considered traceable costs of the segment.

Accepted Answer

Traceable costs are costs that can be directly and exclusively attributed to a specific segment. If a segment were eliminated, then only traceable costs would disappear along with it. Therefore, only traceable costs should be considered as costs that would disappear over time if a segment were eliminated.

Question 7

Routsong Company had the following sales and production data for the past four years:  Selling price per unit,variable cost per unit,and total fixed cost are the same in each year.Which of the following statements is not correct?
A)Under variable costing,net operating income for Year 1 and Year 2 would be the same.
B)Because of the changes in production levels,under variable costing the unit product cost will change each year.
C)The total net operating income for all four years combined would be the same under variable and absorption costing.
D)Under absorption costing,net operating income in Year 4 would be less than the net operating income in Year 2.

Accepted Answer

Under variable costing, the unit product cost is calculated as the sum of variable manufacturing costs and variable selling and administrative expenses. Since the variable cost per unit and selling price per unit are the same in each year, the unit product cost will change each year due to the changes in production levels. All other statements are correct.

Question 8

A segment is any portion or activity of an organization about which a manager seeks revenue,cost,or profit data.

Accepted Answer

This is a true statement. A segment can refer to any distinct part of an organization, such as a specific product line, geographic market, or customer group, for which a manager wants to analyze financial performance.

Question 9

The salary paid to a store manager is a traceable fixed expense of the store.

Accepted Answer

A traceable fixed expense is a cost that can be easily attributed to a specific department or cost center, and the salary of the store manager is directly related to the operation of the store. Therefore, it is a traceable fixed expense.

Question 10

The salary of the treasurer of a corporation is an example of a common cost which normally cannot be traced to product segments.

Accepted Answer

The salary of the treasurer is a common cost which is incurred for the overall management of the corporation and cannot be directly allocated to any specific product segment.

Question 11

Under variable costing,fixed manufacturing overhead cost is treated as a product cost.

Accepted Answer

Under variable costing, fixed manufacturing overhead is treated as a period cost, not a product cost.

Question 12

Variable manufacturing overhead costs are treated as period costs under both absorption and variable costing.

Accepted Answer

Variable manufacturing overhead costs are treated as product costs under absorption costing and as period costs under variable costing.

Question 13

In responsibility accounting,each segment in an organization should be charged with the costs for which it is responsible and over which it has control plus its share of common organizational costs.

Accepted Answer

In responsibility accounting, each segment is charged only with the costs for which it is directly responsible and has control, not common organizational costs.

Question 14

Segmented statements for internal use should be prepared in the contribution format.

Accepted Answer

Segmental analysis of financial statements for internal use should be prepared in the contribution format. This analysis helps management to understand the profitability of various business segments and make effective decisions regarding resource allocation and cost control. The contribution format separates fixed costs from variable costs, making it easier to identify areas for cost reduction and revenue enhancement.

Question 15

Fixed costs that are traceable to a segment may become common if the segment is divided into smaller units.

Accepted Answer

If a segment is divided into smaller units, the fixed costs that were previously traceable to the overall segment may need to be allocated across the smaller units, making them common costs. This is because the smaller units may not have sufficient activity or revenue to justify the full allocation of the fixed costs that were previously traceable to the overall segment.

Question 16

The contribution margin is viewed as a better gauge of the long run profitability of a segment than the segment margin.

Accepted Answer

The segment margin is a better gauge of long-term profitability as it accounts for both variable and fixed costs directly attributable to the segment, whereas the contribution margin only considers variable costs.

Question 17

When reconciling variable costing and absorption costing net operating income,fixed manufacturing overhead costs deferred in inventory under absorption costing should be added to variable costing net operating income to arrive at the absorption costing net operating income.

Accepted Answer

This is correct. Under absorption costing, fixed manufacturing overhead costs are included in the cost of inventory and do not get expensed until the inventory is sold. Therefore, to reconcile the net operating income under absorption costing and variable costing, the deferred fixed manufacturing overhead costs in inventory must be added to the variable costing net operating income.

Question 18

Assuming that a segment has both variable expenses and traceable fixed expenses,an increase in sales should increase profits by an amount equal to the sales times the segment margin ratio.

Accepted Answer

The increase in profits would be equal to the increase in sales times the contribution margin ratio, not the segment margin ratio. The segment margin ratio includes traceable fixed expenses, which do not change with sales.

Question 19

Under variable costing,all variable costs are treated as product costs.

Accepted Answer

The answer of Under variable costing,all variable costs are treated...

Question 20

In segment reporting,sales dollars is usually an appropriate allocation base for selling,general,and administrative expenses.

Accepted Answer

Sales dollars are not typically used as an allocation base for selling, general, and administrative expenses because these expenses do not necessarily correlate directly with sales revenue. Instead, they are often allocated based on factors like headcount, square footage, or specific activity drivers.

Quiz 5: Variable Costing and Segment Reporting: Tools for Management