MANAGERIAL ACCOUNTING

CHAPTER 6+7

1.Which of the following statements are correct regarding income statements prepared
under variable and absorption costing?
1. Reported net income on the statements often differ.
2. Both income statements include product and period costs.
2.Variable costing treats ______ manufacturing costs as product costs.
only variable
3.Under absorption costing product costs consist of ______ costs.
both variable and fixed manufacturing
4.The two general costing approaches used by manufacturing companies to prepare
income statements are ________ , costing and __________ Costing.
Absorption, Variable
5.A part or activity within an organization about which managers would like cost, revenue
or profit data is called a(n)
segment
6.Under both variable costing and absorption costing, variable and fixed selling and
administrative costs are treated as ______ costs.
period
7.Variable costing income statements are based upon a ______ format.
contribution
8.Under variable costing the cost of a unit of inventory does not contain ______.
fixed manufacturing overhead
9.Absorption and variable costing net income are usually different due to the accounting
for ______.
fixed manufacturing overhead
10.Under absorption costing, fixed overhead is treated like a variable cost because a
portion of the total cost is allocated to each unit produced, rather than being expensed as
one large sum.
 true
11.Which of the following statement is correct?
Internal income statements are generally prepared using variable costing and external
income statements are generally prepared using absorption costing.

12.Put'er There manufactures baseball gloves that require $22 of direct materials and $18
of direct labor. Variable manufacturing overhead cost is $7 per glove and fixed
manufacturing overhead cost is $19,000 in total. Variable selling and administrative costs
are $11 per unit sold and fixed selling and administrative costs are $13,200. Last period,
800 gloves were produced, and 585 gloves were sold. The unit product cost using variable
costing is ______.
$47

$22 ( Direct materials ) + $18 ( Direct Labor ) + $7 (Variable MOH)

13.Selling and administrative expenses ______.
are always treated as period costs
14.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 produces 900 fans and sells 842
fans this month, the total cost of goods sold will be $
COGS = Amount of goods sold x product cost

842 x 112 = $ 94,304

15.Fixed manufacturing overhead costs are included as part of Work in Process inventory
under ______.
Absorption Costing
16.Absorption costing treats fixed manufacturing overhead as a ______ cost.
product
17.Frames, Inc. picture frames each require $19 of direct materials and $40 of direct
labor. Variable manufacturing overhead cost is $9 per frame and variable selling and
administrative expense is $13 per frame sold. Total fixed manufacturing overhead cost per
month is $15,000 and the company produces 5,000 frames each month. The unit product
cost of each frame using variable costing is $__________
Variable Costing unit product cost = Direct Materials + Direct Labor + Variable Manufacturing
overhead

= $19 + $40 + $9
=$68

18.Citrus Scents produces body sprays. Variable selling and administrative expense is
$1.05 per bottle and fixed selling and administrative expense is $4,500 per month. The
company produced 1,490 bottles this month, and sold 1,203 of those bottles. Total selling
and administrative expense for the month was ______.
$5,763.15
($1.05 x 1203) + $4500 =$5,763.15
19.Citrus Scents produces body sprays. Each bottle has a unit product cost of $5.38. This
month 1,490 bottles were produced and 1,203 bottles were sold. Total cost of goods sold is
______.
$6,472.14
$5.38 x 1,203 = $6,472.14
20.The variable costing income statement separates ______.
variable and fixed expenses
21.The difference between reported net income on variable costing and absorption costing
income statements is based on how ______.
fixed overhead is accounted for
22.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
23.Comfy Cozy Chairs makes rockers that require $45 of direct materials and $37 of
direct labor. Variable manufacturing overhead is $8 per rocker, and fixed manufacturing
overhead totals $58,000. Variable selling and administrative costs are $15 per rocker, 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
Blank______.
$119
$45 + $37 + $8 + ($58,000 ÷ 2,000) = $119
24.An absorption costing income statement calculates ______.
gross margin by deducting cost of goods sold from sales
25.Blissful Breeze manufactures and sells ceiling fans. Variable selling and administrative
expense is $11.50 per fan and fixed selling and administrative expense is $7,800 per
month. If Blissful Breeze produces 900 fans and sells 842 fans this month, total selling and
administrative expenses will be $

26.On an absorption costing income statement, selling and administrative expenses

______.
1. are reported as a single amount
2. equal the amounts reported on a variable costing income statement
27.Sleep Tight manufactures pillows. The company incurred $42,000 of fixed
manufacturing overhead cost this year. Variable unit product cost was $17. Variable
selling and administrative cost was $9 per unit and fixed selling and administrative
expenses totaled $59,000. The company manufactured 28,000 pillows and sold 15,408.
Total fixed expenses on the variable costing contribution format income statement equal
______.
$101,000
($42,000 fixed MOH) + ($59,000 Fixed selling and administrative expenses)
28.The difference in net operating income between absorption costing and variable costing
is due to the ______.
time when fixed overhead is expensed
29.Absorption costing net income may be computed by multiplying the number of units
sold by the contribution margin per unit and subtracting total fixed expenses. t/f
 False
30.Given the following information, calculate the unit product cost under absorption
costing.
Direct materials: $50/unit
Direct labor: $75/unit
Variable manufacturing overhead: $27/unit
Fixed manufacturing overhead: $30,000 total
Units: 10,000 produced and 6,000 sold
$155
Reason:
$50 + $75 + $27 + ($30,000 ÷ 10,000) = $155 per unit
30.when the number of units produced equals the number of units sold, ______.
1. absorption costing net income is equal to variable costing net income
2. all fixed overhead incurred flows to the income statement under both costing methods
31.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
Reason:
$76.35 × 155 = $11,834.25
32.Selling and administrative expenses are ______ on both the absorption and variable
costing income statements.
the same amount
33.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\

34.When units produced exceed units sold, net income will generally be ______ costing.
higher under absorption costing than under variable
35.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
36.When units sold exceed units produced, net income under variable costing will
generally be ______ net income under absorption costing.
lower than
37.Absorption costing and variable costing net operating income will be equal when
______.
1. the number of units produced equals the number of units sold
2. there is no beginning and no ending inventory
38.Financial statement users need to be aware of changes in inventory levels when using
______ costing.
absorption
39.Absorption costing can lead managers to mistakenly believe that fixed manufacturing
overhead costs will ______ in total as the number of units produced increases.
increase
40.An example of a traceable fixed cost for General Motors' Corvette Division is the
______.
depreciation on equipment used to manufacture Corvettes
41.Net operating income under absorption costing is generally ______ net operating
income under variable costing in periods in which inventory increases.
higher than
42.If a segment is entirely eliminated, common fixed costs will ______.
not change
43.Net operating income is less under absorption costing than under variable costing when
inventory for the period ______.
Decreases
44.The number of units produced does not affect net operating income when using ______
costing.
variable
45.The segment margin represents the ______.
 margin available after a segment has covered all of its own costs
46.Which of the following statements are correct?
1. Variable costing emphasizes the impact of fixed costs on profit.
2. Absorption costing makes fixed costs appear to be variable.
47.A traceable fixed cost ______.
is incurred because of the existence of the segment
48.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
49.When a segment cannot cover its own costs, that segment should ______.
probably dropped
50.Assigning common fixed costs to segments impacts ______.
segment margin only
51.Segment margin is obtained by deducting each segment's ______.
traceable fixed costs from its contribution margin
52.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 cost to the plant and a common fixed cost
53.Segmented income statements ______.
may be prepared for activities at many levels in a company
54.A segment should probably be dropped when the segment ______.
1. cannot cover its own costs
2. has a contribution margin that cannot cover traceable fixed costs
55.When calculating the profit impact of discontinuing a segment, consider ______.
1. the segment's contribution margin
2. the segment's traceable fixed costs
56.Only costs that would disappear over time if a segment disappeared should be treated
as ________ fixed costs.
traceable
57.The segment margin is the best gauge for assessing the long-run ______ of a segment.
profitability
58.Dollar break-even for a company is calculated as ______.
(Traceable fixed expenses + Common fixed expenses) ÷ Overall CM ratio
59.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 of a
store is a ______ the product lines.
traceable fixed cost for the store and a common fixed cost for
60.JPL Company has two segments - Retail and Commercial. The Retail segment has a
contribution margin ratio of 40% and traceable fixed expenses of $70,000. Commercial
has traceable fixed expenses of $50,000 and a contribution margin ratio of 55%. The
company also has $30,000 of common fixed expenses. The break-even point in dollar sales
for the Retail segment equals ______.
$175,000
Reason:
$70,000 ÷ 40% = $175,000
61.When preparing a segment margin income statement ______.
1. cost of goods sold consists of only variable manufacturing costs
2. traceable fixed expenses are deducted from contribution margin
62.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%. Discontinuing
Catalog Sales should increase company profits by ______.
$11,000
Reason:
Increased online sales contribution margin [$100,000 × 10% × ($60,000 ÷ $100,000)] is
$6,000 + $5,000 saved from stopping catalog sales = $11,000.
63.The company-wide break-even sales will always be ______ the sum of the segment
break-even sales.
higher than
64.Which of the following is NOT a common mistake made in preparing segmented
income statements?
Computing contribution margin instead of gross margin.
65.A company has two segments with total sales of $500,000 and total variable costs of
$343,750. Traceable fixed expenses are $50,000 and common fixed expenses are $80,000.
The break even in dollars for the company as a whole equals $
$416000
66.Using absorption costing for segmented income statements can lead to ______.
1. under-costing of segments
2. omission of upstream and downstream costs
67.Segment break-even calculations include ______ fixed expenses.
only traceable
68.Costs that can be traced directly to a segment ______.
should not be allocated to other segments
69.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
70.Common mistakes made by companies when assigning costs to segments include
______.
1. omitting costs that should be included
2. arbitrarily allocating common fixed costs
3. inappropriately assigning traceable fixed costs
71.Because nonmanufacturing costs are not included as costs of a product, the use of
_________ , Correct Unavailable costing can lead to the omission of segment costs.
absorption
72.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
 Chapter 07
1._____ costs in many firms represent a much higher percentage of product costs than
direct labor.
a.Control b.Failure c.Nonvalue-added d.Overhead e.Appraisal
d. overhead
2.A(n) ____ ratio measures the proportion of an activity consumed by a product.
a.usage b.consumption c.quality d.efficiency e.production
b. consumption
3.Using only unit-based activity drivers to assign nonunit-related overhead costs can cause
a.product diversity. b.distorted product costs. c.efficiency. d.activity sharing. e.None of
these.
b.distorted product costs.
4.A volume-based costing system emphasizes direct tracing and driver tracing.
true or false
false
5.Product diversity means that products consume overhead activities in systematically
different proportions.
true or false
true
6.Unit-level activities are performed each time a unit is produced.
true or false
true
7.A work distribution matrix is derived from an interview or a written survey.
true or false
true

8.An activity dictionary lists the activities in an organization along with some critical
activity attributes.
true or false
 true
9.____ can help a company become more competitive by providing more accurate cost
data.

a.Unit-based costing
b.Production costing
c.Kaizen costing
d.Volume-based costing
e.Activity-based costing
e. activity based costing
10.A costing system that first assigns costs to activities and then to products is
a.activity-based costing.
b.job-order costing.
c.activity-based management.
d.nonunit-level costing.
e.volume based costing.
a. activity-based costing
11.A list of activities accompanied by information that describes each activity is an activity
____.
a.note
b.dictionary
c.manifesto
d.journal
e.diary
b. dictionary
12.Activity drivers should be classified as either unit-level or nonunit-level.
true or false
true
13.Setups, material handling, and inspection are all possible examples of
a.product diversity.
b.unit level overhead activities.
c.nonunit-level overhead activities.
d.sustainable development.
e.None of these.
c. nonunit-level overhead activities
14.Interviews and surveys are used to identify
a.velocity.
b.control costs.
c.costs.
d.cycle time.
e.activities.
e. activities

15.An activity-based costing system first assigns costs to activities and then to cost objects.
true or false
true
16____ are assigned using direct tracing and resource drivers.
a.Profits
b.Products
c.Resources
d.Costs
e.Materials
d. costs
17.In an activity dictionary, types of resources consumed is an example of a(n)

a.quality.
b.activity attribute.
c.activity sharing.
d.allocation.
b. activity attribute
18.____ is present whenever products have different consumption ratios for different
overhead activities.
a.Environmental costs
b.Activity sharing
c.Product diversity
d.Activity inputs
e.Control costs
c.Product diversity
19.Activity drivers can be classified as either ____ or ____.
a.right; wrong
b.exact; inexact
c.inputs; outputs
d.unit-level; nonunit-level
d.unit