Chapter 6: Variable Costing & Segmented Reporting Flashcards

1
Q

Variable Costing- Product

A

Direct Materials, Direct Labor, Variable MOH

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2
Q

Variable Costing- Period

A

Fixed MOH, Variable Selling and Admin Expense, Fixed Selling and Admin Expense

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3
Q

Absorption Costing- Product

A

Direct Materials, Direct Labor, Variable MOH, Fixed MOH

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4
Q

Absorption Costing- Period

A

Variable Selling and Admin Expense, Fixed Selling and Admin Expense

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5
Q

Price per Unit

A

Fixed MOH/ Units Produced

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6
Q

All FMOH is expensed

A

immediately

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7
Q

When Units produced=Units sold

A

No change in inventory, absorption income= variable income

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8
Q

When Units produced > Units sold

A

Inventory increases, absorption income> variable income

HINT: More produced— more fixed costs

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9
Q

When Units produced < Units sold

A

Inventory decreases, absorption income < variable income HINT: with less inventory, less fixed costs

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10
Q

Segment

A

any part or activity of an organization about which a manager seeks revenue or profit data. Ex. Service center, individual store, sales territory.

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11
Q

Segmented Income Statement uses what format __

A

Contribution Format- separates fixed/variable costs, enables the calculation of CM

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12
Q

Common fixed costs

A

Arise because the overall operations of the company would not disappear if any particular segment were eliminated.

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13
Q

Traceable fixed costs

A

Costs that their only reason for existence is that segment

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14
Q

Traceable fixed costs of one segment may ___

A

be common fixed costs of another segment

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15
Q

Segment Margin=

A

= Traceable FC of segment- C Margin

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16
Q

Segment Margin is

A

the best gauge of the long term profitability of the segment

17
Q

Common costs should not be allocated

A

to individual segments

18
Q

Break-even point=

A

(traceable F/E + Common F/E) / CM Ratio

19
Q

CM ratio=

A

CM/Sales

20
Q

Segment-wide Breakeven Point=

A

traceable F/E / CM ratio (its own)

21
Q

Omission of Costs

A

costs assigned to a segment should include all costs attributable to that segment from the company’s entire value chain.

22
Q

Value Chain

A

R & D, Product Design, Manufacturing, Marketing, Distribution, Customer Service

23
Q

Reasons to not allocate fixed costs (2)

A
  1. makes segments look unprofitable

2. managers held accountable for uncontrollable-s

24
Q

Both GAAP & IFRS require

A

segmented financial data and annual reporting

25
Q

Segmented Income Statement Format

A
Sales
-Variable Expenses=
CM
-Traceable F.E.=
Segment Margin
-C. Fixed Expense=
N. Operating Expense
26
Q

NOI (simplified)

A
Sales
-COGS=
GM
-Selling and Admin=
NOI
27
Q

Variable costing treats fixed manufacturing overhead as a product cost. T/F

A

False.

28
Q

Variable costing treats fixed manufacturing overhead as a period cost. T/F

A

True.

29
Q

Absorption costing treats fixed manufacturing overhead as a period cost. T/F

A

False.

30
Q

In absorption costing, variable manufacturing overhead costs flows through the inventory accounts on the balance sheet before being recorded as part of cost of goods sold on the income statement. T/F

A

True.

31
Q

When the units produced are greater than the units sold, absorption costing income will be greater than variable costing income because absorption costing defers some fixed manufacturing overhead cost in ending inventory whereas variable costing expenses each period’s fixed manufacturing overhead on the income statement. T/F

A

True.

32
Q

When the units produced are less than the units sold, absorption costing income will be less than variable costing income because absorption costing releases some fixed manufacturing overhead cost from ending inventory whereas variable costing expenses each period’s fixed manufacturing overhead on the income statement. T/F

A

True.

33
Q

When the units produced are greater than the units sold, absorption costing income will be greater than variable costing income because absorption costing defers some fixed manufacturing overhead cost in ending inventory whereas variable costing expenses each period’s fixed manufacturing overhead on the income statement. T/F

A

True.

34
Q

When the units produced < units sold, which of the following equations explains the difference between absorption costing and variable costing net operating income?

A

Number of units released from ending inventory × fixed manufacturing overhead cost per unit

35
Q

Dollar sales for company to break even = (Traceable fixed expenses + Common fixed expenses) ÷ Overall contribution margin (CM) ratio. T/F

A

True.