Question 1

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

Accepted Answer

The answer of Common fixed expenses should be allocated to...

Question 2

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 A
B)Option...

Question 3

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, the fixed manufacturing overhead costs per unit will fluctuate as well. As a result, the 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.

Question 4

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

The answer of If a cost must be arbitrarily allocated...

Question 5

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 centers on whether fixed manufacturing costs should be included in product costs. In absorption costing, fixed manufacturing overhead costs are included in product costs, while in variable costing, they are treated as an expense in the period incurred.

Question 6

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 is the correct formula for calculating the dollar sales needed to break even using segmented income statements.

Question 7

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.

Question 8

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 answer of When using segmented income statements,the dollar sales...

Question 9

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 relevant costs associated with a specific segment, including fixed costs, while contribution margin only considers variable costs. Therefore, segment margin provides a more accurate picture of the profitability of a segment over the long-term.

Question 10

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 11

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 as part of the cost of the product and are therefore deferred in inventory when production exceeds sales. This means that they are not expensed until the inventory is sold, at which point they are included in the cost of goods sold.

Question 12

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 method, fixed manufacturing costs are included in the cost of goods sold and inventory. If the number of units produced exceeds the number of units sold, a portion of the fixed manufacturing costs are deferred to the next period as part of the ending inventory. This results in a higher net operating income under absorption costing compared to variable costing, where fixed manufacturing costs are treated as period costs and are expensed in the period they are incurred.

Question 13

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 14

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

The answer of The term gross margin is used in...

Question 15

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

The answer of A common fixed cost is a fixed...

Question 16

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 17

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 and is not included in the cost of goods sold. This means that it is not carried in a liability or an asset account.

Question 18

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 19

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 costs that are incurred for the benefit of more than one segment, and as such, they should not be allocated to any specific segment. Instead, they should be treated as separate from the segmented income statement and be recorded separately on the company's financial statements. Therefore, option B (not be allocated to the segments) is the best choice.

Question 20

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 is...

Quiz 7: Variable Costing and Segment Reporting: Tools for Management

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

Under absorption costing,product costs include:

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

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 principal difference between variable costing and absorption costing centers on:

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

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.

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

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

Under absorption costing,fixed manufacturing overhead costs:

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:

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

The term gross margin is used in reports prepared using:

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.

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:

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?

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

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