Deck 11: Variable Costing and Segment Reporting: Tools for Management

Question 1

The costs assigned to units in inventory are typically lower under variable costing than under absorption costing.

Answer 1

True

Question 2

Under absorption costing, it is possible to defer a portion of the fixed manufacturing overhead costs of the current period to future periods through the inventory account.

Answer 2

True

Question 3

When the number of units in work in process and finished goods inventories decrease, absorption costing net operating income will typically be greater than variable costing net operating income.

Answer 3

False

Question 4

Direct materials is considered to be a product cost under variable costing but not absorption costing.

Question 5

Under absorption costing, the profit for a period is affected by a change in the number of units of finished goods in inventory.

Question 6

A common fixed cost is a fixed cost that supports more than one business segment and is traceable in whole or in part to at least one of the business segments.

Question 7

Common fixed costs should not be charged to the individual segments when preparing a segmented income statement.

Question 8

Assuming the LIFO inventory flow assumption, if production is less than sales for the period, absorption costing net operating income will generally be greater than variable costing net operating income.

Question 9

Assuming the LIFO inventory flow assumption, if production equals sales for the period, absorption costing and variable costing will produce the same net operating income.

Question 10

Because absorption costing emphasizes costs by behavior, it works well with cost-volume-profit analysis.

Question 11

Under absorption costing, fixed manufacturing overhead cost is not included in product cost.

Question 12

When variable costing is used, and if selling prices exceed variable expenses and if the unit contribution margins, the sales mix, and fixed costs remain the same, profits move in the same direction as sales.

Question 13

When viewed over the long term, cumulative net operating income will be the same for variable and absorption costing if ending inventories exceed beginning inventories.

Question 14

Under variable costing, product cost does not contain any fixed manufacturing overhead cost.

Question 15

Under variable costing, variable production costs are not treated as product costs.

Question 16

Under variable costing, product costs consist of direct materials, direct labor, and variable manufacturing overhead.

Question 17

Under conventional absorption costing, the fixed costs associated with idle production capacity are not included as part of the product cost.

Question 18

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

Question 19

Net operating income is affected by the number of units produced when absorption costing is used.

Question 20

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

Question 21

When using segmented income statements, the dollar sales for a company to break even equals the sum of the traceable fixed expenses and the common fixed expenses divided by the overall CM ratio.

Question 22

When using segmented income statements, the dollar sales for a segment to break even equals the common fixed expenses of the segment divided by the segment CM ratio.

Question 23

Routsong Corporation had the following sales and production for the past four years: Selling price per unit, variable cost per unit, and total fixed cost are the same each year. There were no beginning inventories in Year 1. 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.

Question 24

Under variable costing, fixed manufacturing overhead is:

A)carried in a liability account.
B)carried in an asset account.
C)ignored.
D)expensed as a period cost.

Question 25

When sales are constant, but the number of units produced fluctuates, net operating income determined by the absorption costing method will:

A)tend to fluctuate in the same direction as fluctuations in the number of units produced.
B)tend to remain constant.
C)tend to fluctuate in the opposite direction as fluctuations in the number of units produced.
D)fluctuate without any relation to the number of units produced.

Question 26

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.

Question 27

If a cost must be arbitrarily allocated in order to be assigned to a particular segment, then that cost should not be considered a common cost.

Question 28

The term gross margin is used in reports prepared using:

A)both absorption costing and variable costing.
B)absorption costing but not variable costing.
C)variable costing but not absorption costing.
D)neither variable costing nor absorption costing.

Question 29

George Corporation has no beginning inventory and manufactures a single product. If the number of units produced exceeds the number of units sold, then net operating income under the absorption method for the year will:

A)be equal to the net operating income under variable costing.
B)be greater than the net operating income under variable costing.
C)be equal to the net operating income under variable costing plus total fixed manufacturing costs.
D)be equal to the net operating income under variable costing less total fixed manufacturing costs.

Question 30

Routit Corporation had the following sales and production for the past four years: Selling price per unit, variable cost per unit, and total fixed cost are the same each year. There were no beginning inventories in Year 1. Which of the following statements is correct?

A)Under variable costing, net operating income for Year 3 and Year 4 would be the same.
B)Under variable costing, net operating income for Year 2 and Year 3 would be the same.
C)Variable costing net income would exceed absorption costing net income in Year 1.
D)Absorption costing net income would exceed variable costing net income in Year 4.

Question 31

Which of the following costs at a manufacturing company would be treated as a product cost under both absorption costing and variable costing?

A)Option A
B)Option B
C)Option C
D)Option D

Question 32

A common fixed cost is a fixed cost that is incurred because of the existence of a particular business segment and that would be eliminated if the segment were eliminated.

Question 33

Under absorption costing, product costs include:

A)Option A
B)Option B
C)Option C
D)Option D

Question 34

The principal difference between variable costing and absorption costing centers on:

A)whether variable manufacturing costs should be included in product costs.
B)whether fixed manufacturing costs should be included in product costs.
C)whether fixed manufacturing costs and fixed selling and administrative costs should be included in product costs.
D)whether selling and administrative costs should be included in product costs.

Question 35

Common fixed expenses should be allocated to business segments when performing break-even calculations and making decisions.

Question 36

If a cost is a common cost of the segments on a segmented income statement, the cost should:

A)be allocated to the segments on the basis of segment sales.
B)not be allocated to the segments.
C)excluded from the income statement.
D)treated as a product cost rather than as a period cost.

Question 37

Segment margin is a better measure of the long-run profitability of a segment than contribution margin.

Question 38

Under variable costing, which of the following is not expensed in its entirety in the period in which it is incurred?

A)fixed manufacturing overhead cost
B)fixed selling and administrative expense
C)variable selling and administrative expense
D)variable manufacturing overhead cost

Question 39

If a company operates at the break even point for each of its segments, it will lose money overall if common fixed expenses exist.

Question 40

When production exceeds sales and the company uses the LIFO inventory flow assumption, the net operating income reported under absorption costing generally will be:

A)less than net operating income reported under variable costing.
B)greater than net operating income reported under variable costing.
C)equal to net operating income reported under variable costing.
D)higher or lower because no generalization can be made.

Question 41

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations: The total gross margin for the month under absorption costing is:

A)$6,800
B)$197,200
C)$149,600
D)$179,000

Question 42

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations: What is the absorption costing unit product cost for the month?

A)$96 per unit
B)$83 per unit
C)$87 per unit
D)$100 per unit

Question 43

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations: The total contribution margin for the month under variable costing is:

A)$160,000
B)$88,000
C)$42,600
D)$120,000

Question 44

Ragins Corporation produces a single product and has the following cost structure: The absorption costing unit product cost is:

A)$219 per unit
B)$154 per unit
C)$159 per unit
D)$252 per unit

Question 45

Sharron Inc., which produces a single product, has provided the following data for its most recent month of operations: There were no beginning or ending inventories. The variable costing unit product cost was:

A)$111 per unit
B)$190 per unit
C)$117 per unit
D)$110 per unit

Question 46

When using data from a segmented income statement, the dollar sales for a segment to break even is equal to:

A)Common fixed expenses ÷ Unit CM
B)Common fixed expenses ÷ Segment CM ratio
C)Traceable fixed expenses ÷ Unit CM
D)Traceable fixed expenses ÷ Segment CM ratio

Question 47

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations: What is the total period cost for the month under absorption costing?

A)$50,000
B)$7,200
C)$39,600
D)$10,400

Question 48

A company produces a single product. Variable production costs are $12 per unit and variable selling and administrative expenses are $3 per unit. Fixed manufacturing overhead totals $36,000 and fixed selling and administration expenses total $40,000. Assuming a beginning inventory of zero, production of 4,000 units and sales of 3,600 units, the dollar value of the ending inventory under variable costing would be:

A)$4,800
B)$8,400
C)$6,000
D)$3,600

Question 49

A national retail company has segmented its income statement by sales territories. If each sales territory statement is further segmented by individual stores, which of the following will most likely occur?

A)some common fixed expenses in the sales territory segmented statement will become traceable fixed expenses in the individual store segmented statement.
B)some traceable fixed expenses in the sales territory segmented statement will become common fixed expenses in the individual store segmented statement.
C)the sum total of the individual stores' segment margins in each sales territory will be equal to the segment margin for the sales territory.
D)the sum total of the sales territory segment margins will equal the total net operating income for the entire company.

Question 50

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations: What is the variable costing unit product cost for the month?

A)$94 per unit
B)$115 per unit
C)$90 per unit
D)$111 per unit

Question 51

Managers will often allocate common fixed expenses to business segments because:

A)this is required by law.
B)not allocating these costs will lead to bad decisions.
C)they believe this practice will ensure that the company's common fixed expenses are covered.
D)they do not want the sum of the business segment margins to equal the net operating income for the company.

Question 52

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations: What is the total period cost for the month under variable costing?

A)$124,200
B)$123,200
C)$168,200
D)$45,000

Question 53

The following data pertain to last year's operations at Tredder Corporation, a company that produces a single product: What was the absorption costing net operating income last year?

A)$12,000
B)$57,000
C)$2,000
D)$27,000

Question 54

Craft Corporation produces a single product. Last year, the company had a net operating income of $80,000 using absorption costing and $74,500 using variable costing. The fixed manufacturing overhead cost was $5 per unit. There were no beginning inventories. If 21,500 units were produced last year, then sales last year were:

A)16,000 units
B)20,400 units
C)22,600 units
D)27,000 units

Question 55

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations: What is the net operating income for the month under absorption costing?

A)$2,600
B)$15,900
C)$(1,700)
D)$13,300

Question 56

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations: What is the net operating income for the month under variable costing?

A)$15,000
B)$12,100
C)$2,900
D)$5,300

Question 57

Rede Inc. manufactures a single product. Variable costing net operating income was $63,800 last year and its inventory decreased by 300 units. Fixed manufacturing overhead cost was $4 per unit for both units in beginning and in ending inventory. What was the absorption costing net operating income last year?

A)$65,000
B)$1,200
C)$63,800
D)$62,600

Question 58

When using data from a segmented income statement, the dollar sales for the company to break even overall is equal to:

A)(Allocated fixed expenses + Traceable fixed expenses) ÷ Overall CM ratio
B)(Traceable fixed expenses + Common fixed expenses) ÷ Overall CM ratio
C)(Non-traceable fixed expenses + Common fixed expenses) ÷ Overall CM ratio
D)(Traceable fixed expenses) ÷ Overall CM ratio

Question 59

Bartelt Inc., which produces a single product, has provided the following data for its most recent month of operations: There were no beginning or ending inventories. The absorption costing unit product cost was:

A)$125 per unit
B)$246 per unit
C)$117 per unit
D)$183 per unit

Question 60

Crow Corporation produces a single product and has the following cost structure: The variable costing unit product cost is:

A)$190 per unit
B)$95 per unit
C)$102 per unit
D)$96 per unit

Question 61

Swifton Corporation produces a single product. Last year, the company had net operating income of $40,000 using variable costing. Beginning and ending inventories were 22,000 and 27,000 units, respectively. If the fixed manufacturing overhead cost was $3 per unit both last year and this year, what was the income using absorption costing?

A)$15,000
B)$25,000
C)$40,000
D)$55,000

Question 62

Waltz Corporation has two divisions: Xi and Sigma. Data from the most recent month appear below: The company's common fixed expenses total $65,100. The break-even in sales dollars for Sigma Division is closest to:

A)$283,218
B)$379,037
C)$414,904
D)$131,685

Question 63

DC Construction has two divisions: Remodeling and New Home Construction. Each division has an on-site supervisor who is paid a salary of $62,000 annually and one salaried estimator who is paid $36,000 annually. The corporate office has two office administrative assistants who are paid salaries of $40,000 and $32,000 annually. The president's salary is $138,000. How much of these salaries are common fixed expenses?

A)$138,000
B)$210,000
C)$72,000
D)$258,000

Question 64

A company that produces a single product had a net operating income of $75,000 using variable costing and a net operating income of $95,000 using absorption costing. Total fixed manufacturing overhead was $50,000 and production was 10,000 units both this year and last year. Last year was the first year of operations. Between the beginning and the end of the year, the inventory level:

A)decreased by 20,000 units
B)increased by 20,000 units
C)decreased by 4,000 units
D)increased by 4,000 units

Question 65

Sturr Market has 3 stores: P, Q, and R. During October, Store P had a contribution margin of $24,000 and a contribution margin ratio of 30%. Store Q had variable expenses of $48,000 and a contribution margin ratio of 40%. Store R had variable expenses of $84,000 and a variable expense ratio of 70% of sales. Sturr Market's total sales were:

A)$320,000
B)$360,000
C)$440,000
D)$280,000

Question 66

Denner Corporation has two divisions, A and B. The following data pertain to operations in October: If common fixed expenses were $31,000, total fixed expenses were:

A)$31,000
B)$62,000
C)$93,000
D)$52,000
Division A:
Variable expenses = Variable expense ratio × Sales
= 0)70 × $90,000 = $63,000
Division B:
Variable expenses = Variable expense ratio × Sales
= 0)60 × $150,000 = $90,000
Division A:
Segment margin = Contribution margin - Traceable fixed expenses
$2,000 = $27,000 - Traceable fixed expenses
Traceable fixed expenses = $27,000 - $2,000 = $25,000
Division B:
Segment margin = Contribution margin - Traceable fixed expenses
$23,000 = $60,000 - Traceable fixed expenses
Traceable fixed expenses = $60,000 - $23,000 = $37,000
Total fixed expenses = Traceable fixed expenses + Common fixed expenses
= $62,000 + $31,000 = $93,000

Question 67

Koen Corporation has two divisions: Division A and B. Last month, the company reported a contribution margin of $50,000 for Division A. Division B had a contribution margin ratio of 30% and its sales were $250,000. Net operating income for the company was $30,000 and traceable fixed expenses were $50,000. Koen Corporation's common fixed expenses were:

A)$95,000
B)$75,000
C)$45,000
D)$50,000

Question 68

Sechrest Corporation manufactures a single product. Last year, the company's variable costing net operating income was $80,500. Fixed manufacturing overhead costs released from inventory under absorption costing amounted to $18,400. What was the absorption costing net operating income last year?

A)$18,400
B)$80,500
C)$98,900
D)$62,100

Question 69

Channing Corporation has two divisions, C and D. The overall company contribution margin ratio is 30%, with sales in the two divisions totaling $750,000. If variable expenses are $450,000 in Division C and if Division C's contribution margin ratio is 25%, then sales in Division D must be:

A)$75,000
B)$225,000
C)$150,000
D)$300,000

Question 70

Last year, Rassel Corporation's variable costing net operating income was $63,200. Fixed manufacturing overhead costs deferred in inventory under absorption costing amounted to $31,900. What was the absorption costing net operating income last year?

A)$31,300
B)$95,100
C)$63,200
D)$31,900

Question 71

Quinnett Corporation has two divisions: the Export Products Division and the Business Products Division. The Export Products Division's divisional segment margin is $34,300 and the Business Products Division's divisional segment margin is $86,700. The total amount of common fixed expenses not traceable to the individual divisions is $95,600. What is the company's net operating income?

A)$216,600
B)$121,000
C)$25,400
D)($121,000)

Question 72

Gough Corporation has two divisions: Domestic and Foreign. Data from the most recent month appear below: The break-even in sales dollars for the company as a whole is closest to:

A)$609,794
B)$502,579
C)$107,216
D)$436,424

Question 73

Insider Corporation has two divisions, J and K. During March, the contribution margin in Division J was $30,000. The contribution margin ratio in Division K was 40%, its sales were $125,000, and its segment margin was $32,000. The common fixed expenses in the company were $40,000, and the company's net operating income was $18,000. The segment margin for Division J was:

A)$26,000
B)$32,000
C)$8,000
D)$58,000

Question 74

Gunderman Corporation has two divisions: the Alpha Division and the Charlie Division. The Alpha Division has sales of $230,000, variable expenses of $131,100, and traceable fixed expenses of $63,300. The Charlie Division has sales of $540,000, variable expenses of $307,800, and traceable fixed expenses of $120,700. The total amount of common fixed expenses not traceable to the individual divisions is $119,200. What is the company's net operating income?

A)$147,100
B)$331,100
C)$27,900
D)$211,900

Question 75

Last year, Walters Corporation's variable costing net operating income was $60,800 and its inventory decreased by 200 units. Fixed manufacturing overhead cost was $3 per unit for both units in beginning and in ending inventory. What was the absorption costing net operating income last year?

A)$60,800
B)$60,200
C)$600
D)$61,400

Question 76

Yuvil Corporation produces a single product. At the end of the company's first year of operations, 1,000 units of inventory remained on hand. Its variable manufacturing overhead cost is $45 per unit and its fixed manufacturing overhead cost is $10 per unit. Yuvil's absorption costing net operating income would be higher than its variable costing net operating income by:

A)$0
B)$10,000
C)$35,000
D)$45,000

Question 77

Muhn Corporation has two divisions: Division K and Division L. Data from the most recent month appear below: Management has allocated common fixed expenses to the Divisions based on their sales. The break-even in sales dollars for Division K is closest to:

A)$212,340
B)$246,596
C)$370,000
D)$159,574

Question 78

Brummitt Corporation has two divisions: the BAJ Division and the CBB Division. The corporation's net operating income is $10,700. The BAJ Division's divisional segment margin is $76,100 and the CBB Division's divisional segment margin is $42,300. What is the amount of the common fixed expense not traceable to the individual divisions?

A)$86,800
B)$107,700
C)$53,000
D)$118,400

Question 79

Carrejo Corporation has two divisions: Division M and Division N. Data from the most recent month appear below: Management has allocated common fixed expenses to the Divisions based on their sales. The break-even in sales dollars for Division N is closest to:

A)$172,131
B)$219,656
C)$258,230
D)$392,211

Question 80

Sorto Corporation has two divisions: the East Division and the West Division. The corporation's net operating income is $93,200. The East Division's divisional segment margin is $223,200 and the West Division's divisional segment margin is $15,900. What is the amount of the common fixed expense not traceable to the individual divisions?

A)$316,400
B)$145,900
C)$109,100
D)$239,100