Managerial Accounting Case Study and Problems Solutions PDF

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Here are some solutions of a case study and some problems from the chapters 5 to 10 of Managerial Accounting....

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Ray H. Garrison, Eric W. Noreen, Peter C. Brewer

Chapter – 6

Variable Costing and Segment Reporting: Tools for Management

Chapter 06: variable costing and segment reporting: tools for managemen

Chapter 06 Variable Costing and Segment Reporting: Tools for Management

True / False Questions

1. Under variable costing, all variable costs are treated as product costs. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method Level: Medium

2. Under variable costing, fixed manufacturing overhead cost is treated as a product cost. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method Level: Easy

3. The unit product cost under absorption costing does not include fixed manufacturing overhead cost. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method Level: Medium

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Chapter 06: variable costing and segment reporting: tools for managemen

4. Variable manufacturing overhead costs are treated as period costs under both absorption and variable costing. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method Level: Easy

5. When reconciling variable costing and absorption costing net operating income, fixed manufacturing overhead costs deferred in inventory under absorption costing should be added to variable costing net operating income to arrive at the absorption costing net operating income. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ Level: Medium

6. When production is less than sales for the period, absorption costing net operating income will generally be less than variable costing net operating income. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ Level: Medium

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Chapter 06: variable costing and segment reporting: tools for managemen

7. Absorption costing is more compatible with cost-volume-profit analysis than is variable costing. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: Other topics Level: Medium

8. Contribution margin and segment margin mean the same thing. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it to make decisions Level: Medium

9. Assuming that a segment has both variable expenses and traceable fixed expenses, an increase in sales should increase profits by an amount equal to the sales times the segment margin ratio. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it to make decisions Level: Hard

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Chapter 06: variable costing and segment reporting: tools for managemen

10. The salary of the treasurer of a corporation is an example of a common cost which normally cannot be traced to product segments. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it to make decisions Level: Medium

11. The salary paid to a store manager is a traceable fixed expense of the store. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it to make decisions Level: Medium

12. Segmented statements for internal use should be prepared in the contribution format. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it to make decisions Level: Easy

13. Fixed costs that are traceable to a segment may become common if the segment is divided into smaller units. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it to make decisions Level: Medium

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Chapter 06: variable costing and segment reporting: tools for managemen

14. The contribution margin is viewed as a better gauge of the long run profitability of a segment than the segment margin. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it to make decisions Level: Easy

15. In responsibility accounting, each segment in an organization should be charged with the costs for which it is responsible and over which it has control plus its share of common organizational costs. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it to make decisions Level: Medium

16. The contribution margin tells us what happens to profits as volume changes if a segment's capacity and fixed costs change as well. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it to make decisions Level: Medium

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Chapter 06: variable costing and segment reporting: tools for managemen

17. Only those costs that would disappear over time if a segment were eliminated should be considered traceable costs of the segment. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it to make decisions Level: Easy

18. In segment reporting, sales dollars is usually an appropriate allocation base for selling, general, and administrative expenses. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it to make decisions Level: Medium

19. A segment is any portion or activity of an organization about which a manager seeks revenue, cost, or profit data. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it to make decisions Level: Easy

Multiple Choice Questions

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Chapter 06: variable costing and segment reporting: tools for managemen

20. Routsong Company had the following sales and production data for the past four years:

Selling price per unit, variable cost per unit, and total fixed cost are the same in each year. 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.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method Learning Objective: 06-02 Prepare income statements using both variable and absorption costing Level: Hard

21. Would the following costs be classified as product or period costs under variable costing at a retail clothing store?

A. Option A B. Option B C. Option C D. Option D

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method Level: Medium

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Chapter 06: variable costing and segment reporting: tools for managemen

22. Fixed manufacturing overhead is included in product costs under:

A. Option A B. Option B C. Option C D. Option D

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method Level: Easy

23. Which of the following are considered to be product costs under variable costing? I. Variable manufacturing overhead. II. Fixed manufacturing overhead. III. Selling and administrative expenses. A. I. B. I and II. C. I and III. D. I, II, and III.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method Level: Easy

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Chapter 06: variable costing and segment reporting: tools for managemen

24. Which of the following are considered to be product costs under absorption costing? I. Variable manufacturing overhead. II. Fixed manufacturing overhead. III. Selling and administrative expenses. A. I, II, and III. B. I and II. C. I and III. D. I.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method Level: Easy

25. Under variable costing, costs that are treated as period costs include: A. only fixed manufacturing costs. B. both variable and fixed manufacturing costs. C. all fixed costs. D. only fixed selling and administrative costs.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method Level: Easy

26. Selling and administrative expenses are considered to be: A. a product cost under variable costing. B. a product cost under absorption costing. C. part of fixed manufacturing overhead under variable costing. D. a period cost under variable costing.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method Level: Easy

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Chapter 06: variable costing and segment reporting: tools for managemen

27. A portion of the total fixed manufacturing overhead cost incurred during a period may: A. be excluded from cost of goods sold under absorption costing. B. be charged as a period cost with the remainder deferred under variable costing. C. never be excluded from cost of goods sold under absorption costing. D. never be excluded from cost of goods sold under variable costing.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 06-02 Prepare income statements using both variable and absorption costing Level: Hard

28. A company using lean production methods likely would show approximately the same net operating income under both absorption and variable costing because: A. ending inventory would be valued in the same manner for both methods under lean production. B. production is geared to sales under lean production and thus there would be little or no ending inventory. C. under lean production fixed manufacturing overhead costs are charged to the period incurred rather than to the product produced. D. there is no distinction made under lean production between fixed and variable costs.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ Level: Medium

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Chapter 06: variable costing and segment reporting: tools for managemen

29. Dull Corporation has been producing and selling electric razors for the past ten years. Shown below are the actual net operating incomes for the last three years of operations at Dull:

Dull Corporation's cost structure and selling price has not changed during its ten years of operations. Based on the information presented above, which of the following statements are true? A. Dull Corporation operated above the breakeven point in each of the three years presented. B. For the three years presented in total, Dull Corporation sold more units than it produced. C. In Year 10, Dull Corporation produced fewer units than it sold. D. In Year 9, Dull Corporation produced more units than it sold.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ Level: Hard

30. Net operating income reported under absorption costing will exceed net operating income reported under variable costing for a given period if: A. production equals sales for that period. B. production exceeds sales for that period. C. sales exceed production for that period. D. the variable manufacturing overhead exceeds the fixed manufacturing overhead.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ Level: Medium Source: CMA, adapted

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Chapter 06: variable costing and segment reporting: tools for managemen

31. If the number of units produced exceeds the number of units sold, then net operating income under absorption costing will: A. be equal to the net operating income under variable costing. B. be greater than 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.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ Level: Medium

32. Over an extended period of time in which the final ending inventories are zero, the accumulated net operating income figures reported under absorption costing will be: A. greater than those reported under variable costing. B. less than those reported under variable costing. C. the same as those reported under variable costing. D. higher or lower since no generalization can be made.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ Level: Hard

33. In an income statement segmented by product line, a fixed expense that cannot be allocated among product lines on a cause-and-effect basis should be: A. classified as a traceable fixed expense and not allocated. B. allocated to the product lines on the basis of sales dollars. C. allocated to the product lines on the basis of segment margin. D. classified as a common fixed expense and not allocated.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it to make decisions Level: Medium

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Chapter 06: variable costing and segment reporting: tools for managemen

34. A common cost that should not be assigned to a particular product on a segmented income statement is: A. the product's advertising costs. B. the salary of the corporation president. C. direct materials costs. D. the product manager's salary.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it to make decisions Level: Easy

35. All other things being equal, if a division's traceable fixed expenses increase: A. the division's contribution margin ratio will decrease. B. the division's segment margin ratio will remain the same. C. the division's segment margin will decrease. D. the overall company profit will remain the same.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it to make decisions Level: Medium

36. All other things equal, if a division's traceable fixed expenses decrease: A. the division's segment margin will increase. B. the overall company net operating income will decrease. C. the division's contribution margin will increase. D. the division's sales volume will increase.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it to make decision...