Question 1

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.

Accepted Answer

This statement is true. The segmented income statement formula for calculating the dollar sales required to break even is:

Break-even point in dollar sales = (Traceable Fixed Expenses + Common Fixed Expenses) / Overall Contribution Margin Ratio

Question 2

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.

Accepted Answer

The dollar sales for a segment to break even equals the traceable fixed expenses of the segment divided by the segment CM ratio, not the common fixed expenses.

Question 3

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.

Accepted Answer

The answer of Routsong Corporation had the following sales and...

Question 4

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.

Accepted Answer

Under variable costing, fixed manufacturing overhead is expensed as a period cost, rather than being included in the cost of goods sold as it is under absorption costing. This is because fixed manufacturing overhead is considered to be a period expense, rather than a cost of producing a specific product.

Question 5

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.

Accepted Answer

When sales are constant, but the number of units produced fluctuates, net operating income determined by the absorption costing method will tend to fluctuate in the same direction as fluctuations in the number of units produced. This is because absorption costing assigns fixed manufacturing overhead to products based on the number of units produced. As the number of units produced increases, more fixed manufacturing overhead is allocated to each unit, resulting in higher per-unit cost and lower net operating income. Conversely, as the number of units produced decreases, less fixed manufacturing overhead is allocated to each unit, resulting in lower per-unit cost and higher net operating income. Therefore, the fluctuations in net operating income will be directly related to the fluctuations in the number of units produced.

Question 6

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.

Accepted Answer

Under absorption costing, fixed manufacturing overhead costs are included in the cost of the product and are deferred in inventory when production exceeds sales, and released when sales exceed production. This is because fixed manufacturing overhead costs are considered to be a necessary part of producing goods and are allocated to each unit produced. As a result, these costs are only recognized as expenses when the products are sold, and until then they remain in inventory.

Question 7

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.

Accepted Answer

A common cost is a cost that supports multiple segments but cannot be directly traced to any single segment. Arbitrary allocation does not change its nature as a common cost.

Question 8

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.

Accepted Answer

Gross margin is used in absorption costing, which includes both fixed and variable manufacturing costs in product costs. Variable costing uses contribution margin instead.

Question 9

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.

Accepted Answer

Under absorption costing, fixed manufacturing costs are included in the cost of goods sold, whereas they are treated as period costs under variable costing. Therefore, if the number of units produced exceeds the number of units sold, some of the fixed costs will be allocated to units that are still in inventory. This will result in a higher cost of goods sold and lower net operating income under variable costing compared to absorption costing. Therefore, the net operating income under absorption costing will be greater than the net operating income under variable costing.

Question 10

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.

Accepted Answer

The answer of Routit Corporation had the following sales and...

Question 11

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

Accepted Answer

The answer of Which of the following costs at a...

Question 12

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.

Accepted Answer

A common fixed cost is not directly attributable to any specific segment and would not be eliminated if a particular segment were eliminated.

Question 13

Under absorption costing, product costs include: 
A)Option A
B)Option B
C)Option C
D)Option D

Accepted Answer

The answer of Under absorption costing, product costs include: 
A)Option...

Question 14

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.

Accepted Answer

The principal difference between variable costing and absorption costing is whether fixed manufacturing costs should be included in product costs. Under variable costing, only variable manufacturing costs are allocated to products, while fixed manufacturing costs are expensed in the period they are incurred. On the other hand, absorption costing charges all manufacturing costs, both variable and fixed, to the product.

Question 15

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

Accepted Answer

Allocating common fixed expenses to business segments can distort the true profitability of each segment, as these expenses are not directly attributable to any specific segment.

Question 16

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.

Accepted Answer

Common costs are not directly traceable to any particular business segment, so they should not be allocated to any segment. Therefore, the cost should not be allocated to the segments and remain as a general cost of the overall business.

Question 17

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

Accepted Answer

Segment margin takes into account all direct and indirect costs related to a particular segment, including fixed costs, while contribution margin only considers direct costs. Therefore, segment margin provides a more accurate picture of the profitability of a segment in the long run.

Question 18

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

Accepted Answer

The answer of Under variable costing, which of the following...

Question 19

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

Accepted Answer

Even if each segment is breaking even, the existence of common fixed expenses (such as rent, salaries, etc.) means that the company as a whole will still incur those expenses and may result in an overall loss.

Question 20

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.

Accepted Answer

When production exceeds sales, inventory levels increase. Under absorption costing, all manufacturing costs, including fixed overhead costs, are included in the cost of inventory. As a result, a larger portion of fixed overhead costs is allocated to the inventory and carried forward as an asset. However, under variable costing, fixed overhead costs are expensed immediately and are not included in the cost of inventory. Therefore, if production exceeds sales, absorption costing will report a higher net operating income compared to variable costing since more fixed overhead costs will be carried forward as assets.

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

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.

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.

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?

Under variable costing, fixed manufacturing overhead is:

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

Under absorption costing, fixed manufacturing overhead costs:

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.

The term gross margin is used in reports prepared using:

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:

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?

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

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.

Under absorption costing, product costs include:

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

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

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

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

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

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

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