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The contribution format income statement requires that managers carefully distinguish between which of the following two types of costs?
Variable and fixed
 
Place the following line items in order to construct a contribution format income statement
Sales
Variable costs
Contribution margin
Fixed costs
Net operating income
 
When a segment is eliminated, a:
traceable fixed cost will disappear & common fixed cost will remain unchanged
 
A part or activity within an organization about which managers would like cost, revenue or profit data is called a(n) _________.
Segment
 
Variable costing only treats ________ manufacturing costs as product costs. (Enter only one word per
blank.)
variable
 
When determining a segment margin, which fixed costs are charged to the segment?
Traceable
 
Which of the following costs make up the manufacturing cost per unit of a product under variable costing?
Direct labor
Direct materials
Variable manufacturing overhead
 
Contrast the way fixed manufacturing overhead costs are treated in absorption costing versus variable costing.
Absorption costing <> Fixed manufacturing overhead is treated as part of the per unit product cost and expensed as units are sold.
Variable costing <> Fixed manufacturing overhead is treated as a period cost and expensed in full each period.
 
A fixed cost that supports the operations of more than one segment, but is not traceable in whole or part to any
one segment is a(n) ________ fixed cost.
common
 
Construct an income statement using absorption costing.
Sales - Total cost of goods sold = Gross margin - Total selling and administrative costs = Net operating income
 
When computing a segment margin, only _______ fixed costs are charged to the particular segment.
traceable
 
Which of the following statements is correct regarding segment margin?
The segment margin is most useful for major decisions that affect capacity.
 
A segment's contribution margin:
is useful for decisions impacting temporary uses of capacity.
 
Product costs under absorption costing are:
Direct materials
Variable manufacturing overhead
Fixed manufacturing overhead
Direct labor
 
For external reporting purposes, manufacturing companies generally prepare ______ costing income statements,
but ______ costing is often used for external reporting purposes.
absorption; variable
 
Absorption costing is:
required by GAAP and IFRS & used by most companies for both internal and external reports
 
GAAP and IFRS rules:
require that the same method be used for both internal and external segment reporting, create problems in reconciling
internal and external reports, & require segmented financial data be included in annual reports
 
Arbot Co. manufactures appliances at 3 manufacturing facilities in the US. Each location has a plan manager who oversees
the manufacturing process for that location. Segmented income statements are prepared for each plant and for each product
manufactured in the plant. The salary of each plant manager is a:
traceable fixed cost to the plant and a common fixed cost for the individual product lines made in the plant
 
When allocating fixed manufacturing overhead cost to units under absorption costing, the total fixed overhead costs must
be divided by the number of units _______.
produced
 
Under absorption costing product costs consist of:
both variable and fixed manufacturing costs
 
When constructing segmented reports:
some costs are not traceable to particular segments
 
A variable costing income statement:
calculates contribution margin while the absorption costing income statement calculates gross margin & focuses on fixed
and variable expenses, while an absorption costing income statement focuses on period and product costs
 
Absorption costing can lead to managers to mistakenly believe that fixed manufacturing overhead costs will _______ as the number of units produced increases.
increases in total
 
When preparing a contribution margin income statement (check all that apply):
cost of goods sold consists of only variable manufacturing costs
variable and fixed costs are listed in separate sections of the statement
 
Variable costing treats fixed manufacturing overhead as a(n) _______ cost.
period
 
When the number of units produced equals the number of units sold:
absorption costing net income is equal to variable costing net income & under both absorption costing and variable costing,
all fixed overhead incurred flows to the income statement
 
Absorption costing treats fixed manufacturing overhead as a _______ cost.
product
 
Match the costing methods with the appropriate in come statement format used by each.
Absorption costing <> Traditional format
Variable costing <> Contribution margin format
 
Variable costing advocates believe that, under the matching principle, fixed costs should be treated as ______ costs.
Period
 
The use of _______ costing can lead to the omission of segment costs because nonmanufacturing costs are not included as costs of a product.
Variable
 
Which of the following are advantages of using variable costing and the contribution approach for internal decision making? (Check all that apply.)
It supports decision making.
It is easy to explain changes in net income.
It enables CVP analysis
 
When should a segment be discontinued?
When the segment margin is negative & when the segment contribution margin doesn't cover the traceable fixed costs.
 
Which of the following statements is correct regarding segmented reporting?
Traceable fixed costs are charged to segments, but common fixed costs are not.
 
Differences in net operating income between absorption costing and variable costing is due to the:
timing of when fixed manufacturing overhead is expensed
 
Incorrectly or arbitrarily assigning common costs to segments:
distorts the profitability of segments, could reduce the overall profits of the company, & holds managers responsible for costs the cannot control
 
When preparing a segment income statement using the contribution format:
variable and fixed costs are listed in separate sections of the statement & cost of goods sold consists of only variable manufacturing costs
 
Variable costing net income may be computed by multiplying the number of units sold by the ________ per unit and subtracting total _______  costs.
contribution margin; fixed
 
What occurs when a cost that is directly traceable to Segment A is incorrectly allocated over several segments?
Segment A's costs will be understated
 
When inventory increases, absorption costing net operating income is higher than variable costing net income due to the fixed manufacturing overhead:
deferred in the inventory account on the balance sheet
 
Differences in net operating Income between absorption costing and variable costing is due to the:
timing of when fixed manufacturing overhead is expensed
 
Net operating income is lower under absorption costing (than under variable costing) when inventory decreases because ________
manufacturing overhead deferred in previous periods is released from inventory to the ________ statement in the cost of goods sold account.
fixed; income
 
Net operating income is less under absorption costing than under variable costing when inventory for the period:
decreases
 
Discontinuing a profitable segment results in:
the loss of segment's revenues & a reduction in the overall profits of the company
 
Direct costing or marginal costing are other terms for ________ costing.
variable
 
Key differences between variable and absorption costing include:
how cost classifications are defined, how fixed overhead is treated, & whether or not contribution margin is reported
 
Absorption costing and variable costing net operating income will be equal when:
there is no beginning and no ending inventory & the number of units produced equals the number of units sold
 
The segment margin equals the segment's contribution margin less the segment's ________ fixed costs.
traceable
 
When using variable costing, fixed manufacturing overhead is:
expensed in the period incurred
 
Under absorption costing, fixed manufacturing overhead accumulates in which accounts until units of products are sold?
Inventory (on the balance sheet)
 
Selling and administrative expenses:
are always treated as period costs
 
When using variable costing:
total fixed manufacturing overhead is expensed in the period incurred
 
Common mistakes made by companies when assigning costs to segments include:
omitting costs that should be included, arbitrarily allocating common fixed costs, & inappropriately assigning traceable fixed costs
 
When inventory increases, which costing method generally results in higher net operating income?
Absorption costing
 
In segmented reporting, what are the two kinds of fixed costs?
Traceable and common
 
Variable and fixed cost distinctions are ignored when a company prepares income statements using ______ costing.
absorption
 
Variable costing net income may be computed by multiplying the number of units sold by the ______ _______ per
unit and subtracting total ______ expenses.
contribution margin; fixed
 
Costs that can be traced directly to a segment:
should not be allocated to other segments
 
When using absorption costing and explaining changes in operating income, financial statement users need to be
aware of changes in ______ levels.
inventory
 
Advocates of ______ costing believe fixed costs are an essential part of product production.
absorption
 
Which of the following is NOT a common mistake in preparing segmented income statements?
Computing contribution margin instead of gross margin
 
A{n) _________ fixed cost supports the operations of more than one segment, but is not traceable in whole or part to any one segment.
(Enter only one word per blank.)
common
 
Under absorption costing, fixed manufacturing overhead costs flow to the income statement when:
units are sold
 
Segmented income statements:
may be prepared for activities at many levels in a company
 
One mistake companies make when preparing segmented income statements is
arbitrarily assigning ______ fixed costs to segments.
untraceable
 
Costs should be allocated to segments for internal decision-making purposes:
only when the allocation base drives the cost being allocated
 
A company with three segments has $10,000 in common fixed expenses. All three segments are at the break-even point.
As a result, the company:
has an overall net operating loss of $10,000
 
Which of the following approaches may be used internally by manufacturing companies for costing products for the purposes
of valuing inventory and cost of goods sold?
a. variable costing
b. absorption costing
c. statement costing
d. fixed costing
 
Variable costing treats ________ manufacturing costs as product costs
a. only variable
b. no
c. only fixed
d. all
 
The segment margin equals the segment's contribution margin less the segment's __________ fixed costs
traceable
 
A fixed cost that supports the operations of more than one segment, but is not traceable in whole or part to any one
segment is a ___________ fixed cost
common
 
Absorption costing net operating income may not agree with the net operating income calculated for CVP analysis due to
the way in which __________ is handled in absorption costing
a. fixed selling and administrative expenses
b. variable manufacturing overhead
c. fixed manufacturing overhead
d. direct labor cost
 
The two general costing approaches used by manufacturing companies to value inventory and cost of goods sold
are ____________ costing and _________ costing
variable; absorption
 
The number of units produced equals the number of units sold:
a. absorption costing total expense is less than variable costing total expense
b. absorption costing net income is equal to variable costing net income
c. absorption costing total expense is greater than variable costing total expense
d. absorption costing net income is less than variable costing net income
e. under both absorption costing and variable costing, all fixed overhead incurred flows to the income statement
f. absorption costing net income is greater than variable costing net income
 
Under variable costing the cost of a unit of inventory does not contain:
a. direct materials
b. direct labor
c. fixed manufacturing overhead
d. variable manufacturing overhead
 
When a segment is eliminated, a:
a. common fixed cost will disappear
b. traceable fixed cost will disappear
c. traceable fixed cost will remain unchanged
d. common fixed cost will remain unchanged
 
Manufacturing cost per unit of a product under variable costing are:
a. direct labor, direct materials, and variable overhead
b. direct materials, direct labor, variable overhead and variable
selling and administrative expenses
c. direct labor, direct materials and all manufacturing overhead
d. direct labor, direct materials and fixed overhead
 
When computing a segment margin, only _________ fixed costs are charged
to the particular segment
traceable
 
When should a segment be discontinued?
a. when the segment margin is negative
b. when the segment contribution margin doesn't cover the traceable fixed costs
c. when the segment margin is positive, but doesn't cover the common fixed costs
d. when the segment contribution margin covers the traceable fixed costs, but doesn't cover the common fixed costs
 
Segment contribution margin equals segment revenue minus the _________ expenses for the segment
variable
 
Segment break-even calculations include:
a. only traceable fixed expenses
b. only common fixed expenses
c. both traceable and common fixed expenses
 
Fixed manufacturing overhead costs are expensed as units are sold as part of cost of goods sold under _______ costing,
and expensed in full with period costs under __________ costing
absorption; variable
 
Discontinuing a profitable segment results in:
a. the loss of the segment's revenues
b. reduced common fixed costs for the company
c. a reduction in the overall profits of the company
 
When inventory decreases, net operating income under absorption costing
will be _____ cost of goods sold under variable costing
a. more than
b. less than
c. equal to
 
Absorption costing and variable costing net operating income will be equal when:
a. there is a change in ending, but not beginning, inventory
b. the number of units produced equals the number of units sold
c. the change in beginning inventory is greater than the change in ending inventory
d. there is no beginning and no ending inventory
 
When there is no change in inventory, net operating income will be:
the same under both absorption and variable costing
 
The number of units produced does not affect net operating income when using ________ costing
variable
 
Common mistakes made by companies when assigning costs to segments include:
a. arbitrarily allocating common fixed costs
b. omitting costs that should be included
c. inappropriately allocating variable costs
d. inappropriately assigning traceable fixed costs
 
Net operating income under absorption costing is generally _________ net income under variable costing in
periods in which inventory increases
higher than
 
When allocating fixed manufacturing overhead cost to units under absorption costing, the total fixed overhead costs must
be divided by the number of units __________
produced
 
A variable costing income statement:
a. does not include fixed manufacturing overhead, which is included on an absorption costing income statement
b. calculates contribution margin while the absorption costing income statement calculates gross margin
c. is constructed exactly like an absorption costing income statement
d. focuses on fixed and variable expenses, while an absorption costing income statement focuses on period and product costs
 
Blink sells and manufactures frames for eyeglasses. The unit product
cost for frame #47320 is $76.35. Last period, Blink produced 200 frames
and sold 155 of them. Total cost of goods sold equals:
$11,834.25
76.35 x 155 = 11,834.25
 
Advocates of variable costing: (Check all that apply.)
argue that fixed costs are not caused by and cannot be meaningfully traced to any specific unit that is produced.
believe that fixed manufacturing overhead is a period cost.
 
Variable costing treats fixed manufacturing overhead as a _______ cost
Period
 
Advocates of __________ costing believe fixed costs are an essential part of product production.
absorption
 
Pearls, Pearls, Pearls! manufactures and sells jewelry. The total variable cost of goods sold this month is $72,490. Variable selling and
administrative cost is $22 per unit sold. If 350 units areproduced and 314 units are sold this month, the total variable cost reported
on the income statement for the month is ________.
$ 79398.
 
Product costs under absorption costing are:
a. variable selling and administrative
b. direct labor
c. fixed manufacturing overhead
d. direct materials
e. fixed selling and admin
f. variable manufacturing overhead
 
When constructing segmented reports:
a. some costs are not traceable to particular segments
b. all costs should be allocated to the various segments
c. allocating common costs to segments improves segment analysis
 
Costs are separated between variable and fixed expenses when using _________ costing, whereas _______ costing separates
costs between product and period
variable; absorption
 
How is the contribution format used in segment reporting different from a contribution income statement for the company as a whole?
fixed costs are divided into traceable and common costs, so that managers are only held accountable for the traceable costs of their segments
 
Put'er There manufactures baseball gloves. Each glove requires $22 of direct materials and $18 of direct labor. Variable
manufacturing overhead cost is $7 per unit and fixed manufacturing overhead cost is $19,000 in total. The company incurs
variable selling and administrative costs of $11 per unit sold and fixed selling and administrative costs of $13,200.
Last period, 800 gloves were produced, and 585 gloves were sold.
What is the unit product cost using variable costing?
$47 per unit
 
Absorption costing net operating Income may not agree with the net operating income calculated for CVP analysis due to the way in
which ___ is handled in absorption costing.
fixed manufacturing overhead
 
Selling and admin expenses are not product costs. Under variable
costing, fixed overhead is not a product cost
 
When should a segment be discontinued?
when the segment contribution margin doesn't cover the traceable fixed costs
when the segment margin is negative
 
Which of the following statements regarding segmented reporting is incorrect?
segmented reporting is not useful for organizations with more than one product
 
True or false : Cost, profit and investment centers are segments, but sales territories, manufacturing plants, and
service departments are not segments.
False
 
When the number of units produced equals the number of units sold:
a. absorption costing total expense is greater than variable costing total expense
b. absorption costing net income is equal to variable costing net income
c. absorption costing total expense is less than variable costing total expense
d. absorption costing net income is greater than variable costing net income
e. absorption costing net income is less than variable costing net income
f. under both absorption costing and variable costing, all fixed overhead incurred flows to the income statement
 
Bart's Inc. operates retail stores in various cities. Segmented income statements are prepared for each store and for
each product line in each store. The property tax for the store is a _______ fixed cost for the store, and a _______ fixed
cost for each product line sold in the store.
traceable; common
 
Absorption costing can lead managers to mistakenly believe that fixed manufacturing overhead costs will ______ as
the number of units produced increases
increase in total
 
Under absorption costing, fixed manufacturing overhead costs flow to the income statement when:
a. the period has ended
b. units are sold
c. units are produced
d. the fixed manufacturing overhead cost is incurred
 
Pearls manufactures and sells jewelry. The total variable cost of goods sold this month is $72,490. Variable selling and
administrative cost is $22 per unit sold. If 350 units are produced and 314 units are sold this month, the total variable
cost reported on the income statement for the month is:
$79,398
 
Under both variable costing and absorption costing, variable and fixed administrative costs are treated as
a. period costs
b. product costs
 
Comfy Cozy Chairs makes and sells rockers. Each rocker requires $45 of direct materials and $37 of direct labor. Variable
manufacturing overhead amounts to $8 per unit, and fixed manufacturing overhead totals $58,000. Variable selling and
administrative costs amount to $15 per unit, and fixed selling and administrative costs total $102,000. During the period,
2,000 rockers were produced and 1,640 were sold. The unit product cost using absorption costing is:
$119
 
Which of the following statements is correct regarding segmented reporting?
a. traceable fixed costs are charged to segments, but common fixed costs are not
b. both traceable and common fixed costs are charged to segments in order to calculate the segment margin
c. fixed costs are not charged to segments because only variable costs are used to calculate the segment margin
d. common fixed costs are charged to segments, but traceable fixed costs are not
 
When using absorption costing and explaining changes in operating income, financial statement users need to
be aware of changes in _______ levels.
inventory
 
Using variable costing and the contribution approach for internal decision making:
a. facilitates explaining changes in net income
b. enables CVP analysis
c. supports decision making
d. is required as part of GAAP financial statements
 
Net operating income is lower under absorption costing (than under variable costing) when inventory decreases
because _______ manufacturing overhead deferred in previous periods is released from inventory to the _______
statement in the cost of goods sold account.
fixed; income
 
Under absorption costing for segmented income statements can lead to:
a. inconsistencies between internal and external reports
b. under-costing of segments
c. omission of upstream and downstream costs
d. the need to maintain two costing systems
 
Granny's Touch manufactures and sells cookbooks. The company's variable cost of goods sold is $39,200 and variable selling and
administrative expense is $6,200. Fixed manufacturing overhead is $19,700 and fixed selling and administrative expense is $9,290.
An income statement prepared using variable costing shows $______ as the total fixed expenses
$28,990
 
True or false: It is easy to determine whether a cost should be classified as traceable or common
False
 
To support the TOC approach, which of the following must be done to the variable costing income statement?
Report direct labor costs as part of fixed manufacturing overhead.
 
Decision-making problems that could occur when using absorption costing include inappropriate _______
decisions, and decisions made to ______ products that are, in fact, profitable
a. production; focus upon
b. strategy; produce
c. pricing; drop
d. reporting; add
 
When a segment cannot cover its own costs, that segment should:
a. probably be dropped
b. recalculate its segment margin without including common fixed costs
c. be combined with another profitable segment
 
Net income computed under ______ costing may not agree with the results of CVP analysis
a. variable
b. absorption
c. marginal
d. direct
 
Which of the following statements is correct?
It is important to avoid allocating common fixed costs to segments.
 
The use of ______ costing can lead to the omission of segment costs because nonmanufacturing costs are not
included as costs of a product
Absorption
 
The unit product cost of a blender is $24. If 900 blenders are produced and 849 blenders are sold, the total cost of
goods sold is _________ (DO NOT put a comma in your answer).
$20376
 
One mistake companies make when preparing segmented income statements is arbitrarily assigning ______ fixed costs to segments
common
 
True or false: When calculating the segment margin, both traceable and common fixed costs are charged to the segment
False
 
Net operating income is less under absorption costing than under variable costing when inventory for the period
a. increases
b. remains the same
c. decreases
 
In segmented reporting, what are the two kinds of fixed costs?
a. traceable and common
b. general and common
c. manufacturing and traceable
d. manufacturing and general
 
A company with 3 sements has $10,000 in common fixed expenses. All 3 segments are at the break-even point.
As a result, the company:
a. has an overall net operating income of $10,000
b. has an overall net operating loss of $10,000
c. is at the break-even point
 
Variable costing net income may be computed by multiplying the number of units sold by the _____ _______
per unit and subtracting total ______ expenses
contribution margin; fixed
 
Variable selling and administrative cost is $4 per unit sold, and fixed selling and administrative costs totals $48,400.
A total of 429 units were produced and 297 units were sold. Total selling and administrative cost is:
$49,588
 
Match the costing method with the way costs are separated for the method:
Absorption costing <> Manufacturing and selling and administrative
Variable costing <> Variable and fixed
 
Differences in net operating income between absorption costing and variable costing is due to the:
a. format of the income statements
b. timing of when fixed manufacturing overhead is expensed
c. amount of sales revenue reported
d. amount of selling and administrative cost expensed
 
Costs that can be traced directly to a segment:
a. should not be allocated to other segments
b. should be allocated to all segments
b. may be treated as common costs
 
Segmented income statements:
a. may be prepared for the various departments in the company, but not
for specific product lines
b. are best used to determine which locations are profitable, rather
than which product lines are profitable
c. should only be used for profit centers
d. may be prepared for activities at many levels in a company
 
The _________ costing method must be used for external reporting in the United States in order to comply with GAAP and IFRS .
absorption
 
The segment margin is obtained by deducting the ______ fixed costs of a segment from the segment's _______
Traceable, Contribution Margin
 
From a decision making point of view, _______ margin is most useful for major capacity decisions
and ______ margin is most useful for short-term sales volume decisions.
Segment, Contribution
 
An example of traceable fixed cost for General Motors' Corvette Division is the _______
Deprecation cost on the equipment used to manufacture the Corvettes.
 
If a segment is entirely eliminated, common fixed costs will ______
not change
 
The segment margin is a valuable tool used for assessing the long-run _______ of a segment.
Profitability
 
Blissful Breeze manufactures and sells ceiling fans. Each fan has a unit product cost of $112 and a unit selling price of $190.
If Blissful Breeze is able to produce 900 fans and sell 842 fans this period, the total cost of goods sold would be __________.
$94,304
 
Only costs that would disappear over time if a segment disappeared should be treated as ______ fixed costs.
Traceable
 
GMP and IFRS rules (Check all that apply):
require that the same method be used for both internal and external segment reporting.
require segmented financial data be included in annual reports.
 
A segment should be discontinued when the segment _______
Cannot cover it's oven costs
has a contribution Margin that cannot cover traceable fixed costs
 
True or False: Segment margin is most useful in decisions involving short-run changes in sales volume such as pricing special orders.
False
 
Arbot Co. manufactures appliances at three manufacturing facilities in the United States. Each location has a plant manager who
oversees the manufacturing process for that location. Segmented income statements are prepared for each plant and for each
product manufactured in the plant. The salary of each plant manager is a ______ for the individual product lines made in the plant
Traceable fixed costs to the plant and a common fixed cost
 
Segment contribution margin equals segment revenue minus the _________ expenses for the segment.
Variable
 
Assigning common fixed costs to segments impacts ______
segment margin only
 
When calculating the profit impact of discontinuing a segment, consider ________
the segment's contribution margin and the segment's traceable fixed costs
 
Dollar break-even for a company is calculated as _________
(Traceable fixed expenses + Common Fixed expenses) / Overall CM ratio
 
When preparing a segment margin income statement ________
traceable fixed expenses are deducted from the contribution margin and cost of goods sold consists
of only variable manufacturing costs
 
When a segment is eliminated, a_______.
common fixed cost will remain unchanged and traceable fixed cost will disappear
 
If a segment is eliminated, ___ fixed costs that are not traced to the segment will not change.
common
 
For external reporting, income statements are generally prepared using ____ costing, while _____ costing is
used for internal decision making purposes.
absorption; variable
 
The segment margin represents the ______.
margin available after a segment has covered all of its own costs
 
A part or activity within an organization about which managers would like cost, revenue or profit data is called a(n) _____.
segment
 
Variable costing income statements are based upon a ______ format.
contribution
 
________ margin is most useful is most useful in decisions involving short-run changes in sales volume such as pricing special orders.
contribution
 
_______ margin is most useful in major decisions that affect capacity such as dropping a segment.
segment
 
A traceable fixed cost is incurred because ______.
of the existence of the segment.
 
Assigning common fixed costs to segments impacts ______.
segment margin only.
 
The segment margin is obtained by deducting the ______ fixed costs of a segment from the segment's_____.
traceable; contribution margin
 
A segment should probably be dropped when the segment_____.
cannot cover its own costs and has a contribution margin that cannot cover traceable fixed costs.
 
Segment contribution margin equals segment revenue minus the _________ expenses for the segment.
variable
 
From a decision making point of view, ___________ margin is most useful for major capacity decisions
and ________ margin is most useful for short-term sales volume decisions
segment; contribution
 
When calculating the profit impact of discontinuing a segment, consider ______.
the segment's contribution margin and the segment's traceable fixed costs
 
When a segment is eliminated, a ________.
traceable fixed cost will disappear and a common fixed cost will remain unchanged.
 
Dollar break-even for a company is calculated as _______.
(traceable fixed expenses + common fixed expenses) ÷ overall CM ratio
 
Bart's Inc. operates retail stores in various cities. Segmented income statements are prepared for each store and for
each product line in each store. The property tax for the store is a(n) ___ fixed cost for the store, and a(n) ___ fixed
cost for each product line sold in the store.
traceable; common
 
The company-wide break-even sales will always be ______ the sum of the segment break-even sales.
higher than
 
When preparing a segment margin income statement _______.
traceable fixed expenses are deducted from contribution margin and cost of goods sold consists of only variable manufacturing costs
 
One mistake companies make when preparing segmented income statements is arbitrarily assigning __________
fixed costs to segments
Common
 
Using absorption costing for segmented income statements can lead to:
under-costing of segments and omission of upstream and downstream costs
 
True or False: A cost that can be traced directly to a specific segment should be charged directly to that segment and
not allocated to other segments.
True
 
Segment break-even calculations include _______ fixed expense.
only traceable
 
True or False: A cost that can be traced directly to a specific segment should be charged directly to that segment and
not allocated to other segments.
True
 
Cost should be allocated to segments for internal decision-making purposes ______.
only when the allocation base actually drives the cost being allocated
 
A company with three segments had $10,000 in common fixed expenses. All three segments are at the break-even point.
As a result, the company_________.
has an overall net operating loss of $10,000
 
Which of the following is NOT a mistake made in preparing segmented income statements?
(a) omitting costs that should be included
(b) arbitrarily dividing common costs among segments
(c) using inappropriate allocations bases
(d) computing contribution margin instead of gross margin
 
An otherwise profitable segment may appear to be unprofitable if _____ fixed costs are allocated to it.
common
 
Absorption costing:
is required by GAAP and IFRS and used by most companies for both internal and external reports
 
Advocates of ____ costing believe fixed costs are an essential part of product production.
Absorption
 
SPS Products has two divisions-Catalog Sales and Online Sales. For the last quarter the catalog sales segment margin was ($5,000).
Online sales were $100, 000. Online Sales contribution margin was $60 ,000, and its segment margin was $40,000. If Catalog Sales are
discontinued, it is estimated that online sales will increase by 10%. Calculate the expected profit impact of discontinuing catalog Sales.
$11,000 increase
 
Cost should be allocated to segments for internal decision-making purposes_________ the allocation base actually drives the cost being allocated.
only when
 
Advocates of variable costing believe fixed manufacturing costs_____.
are not caused by and cannot be meaningfully traced to specific units of production and are period expenses.
 
U.S. GAAP and IFRS ______ publicly traded companies include segmented financial data prepared for external users that use the same
methods used in internal segment reports.
require
 
Discontinuing a profitable segment results in ______.
a reduction in the overall profits of the company and the loss of the segment's revenues.
 
In order to comply with GAAP and IFRS, the _______ costing method must be used for external reporting in the United States.
absorption
 
Managers who believe that all manufacturing costs must be assigned to products in order to properly match the cost of production with
sales are advocates of ________ costing.
absorption
 
GAAP and IFRS rules ______.
require that the same method be used for both internal and external segment reporting, create problems in reconciling internal and external reports, and require segmented financial data be included in annual reports.
 
Advocates of variable costing believe fixed manufacturing costs_______.
are period expenses and are not caused by and cannot be meaningfully traced to specific units of production.

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