Chapter 6 - Variable Costing & Segment Reporting: Tools for Management

Allocating common fixed expenses to business segments _____________.

May cause managers to erroneously discontinue business segments.

Hayworth Corporation has just segmented last year’s income statement into its ten product lines. The chief executive officer (CEO) is curious as to what effect dropping on of the product lines at the beginning of last year would have had on overall company profit. What is the best number for the CEO to look at to determine the effect of this elimination on the net operating income of the company as a whole?

The product line’s segment margin

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

Units in beginning inventory 0

Units produced     4,650

Units sold     4,550

Units in ending inventory       100

Variable costs per unit:

      Direct materials $         54 

      Direct labor $         56

Variable manufacturing overhead $         19

Variable selling and administrative expense $            17

Fixed costs

     Fixed manufacturing overhead $   97,650

     Fixed selling and administrative expenses $     45,500

What is the variable costing unit product cost for the month?

 $129 per unit

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

Selling price $164

Units in beginning inventory       0

Units produced           9,900

Unit sold           8,800

Units in ending inventory           1,100

Variable costs per unit:

Direct materials $  49

Direct labor $  48

Variable manufacturing overhead $  10

Variable selling & administrative expense $     7

Fixed cost:

Fixed manufacturing overhead $297,700

Fixed selling & administrative expense   $140,800

What is the total period cost for the month under variable costing?

$499,400

A company produces a single product. Variable production costs are $12.30 per unit and variable selling and administrative expenses are $3.30 per unit. Fixed manufacturing overhead totals $39,000 and fixed selling and administration expenses total $43,000. Assuming a beginning inventory of zero, production of 4,300 units and sales of 3,750 units, the dollar value of the ending inventory under variable costing would be:

 $6,765

When using data from a segmented income statement, the dollar sales for a segment to break even is equal to:

Traceable fixed expense / Segment CM ratio

Younie Corporation has two divisions: the South Division and the West Division. The corporation's net operating income is $88,800. The South Division's divisional segment margin is $39,500 and the West Division's divisional segment margin is $166,900. What is the amount of the common fixed expense not traceable to the individual divisions?

$117,600

Higado Confectionery Corporation has a number of store locations throughout North America. In income statements segmented by store, which of the following would be considered a common fixed cost with respect to the stores?

The cost of corporate advertising aired during the Super Bowl

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

Selling price                                       $     133

Units in beginning inventory                                 0

Units produced                               7,000

Units sold                                         6,800

Units in ending inventory                            200

Variable costs per unit:

  Direct materials                                       $           41

  Direct labor                                         $           57

  Variable manufacturing overhead                        $             5

  Variable selling and administrative expense          $            4

Fixed costs:

  Fixed manufacturing overhead                            $ 133,000

  Fixed selling and administrative expense               $   34,000

What is the total period cost for the month under absorption costing?

$61,200

Dukelow Corporation has two divisions: the Governmental Products Division and the Export Products Division. The Governmental Products Division's divisional segment margin is $44,300 and the Export Products Division's divisional segment margin is $96,700. The total amount of common fixed expenses not traceable to the individual divisions is $111,600. What is the company's net operating income?

$29,400

Kray Incorporated, which produces a single product, has provided the following data for its most recent month of operations:

Number of units produced         4,000

Variable costs per unit:

  Direct materials           $ 38

  Direct labor             $ 20

  Variable manufacturing overhead       $ 8 

Variable selling and administrative expense   $ 4

Fixed costs:

  Fixed manufacturing overhead       $ 316,000

  Fixed selling and administrative expense     $ 300,000

There were no beginning or ending inventories. The variable costing unit product cost was:

$66 per unit

Silver Corporation produces a single product. Last year, the company's variable production costs totaled $7,500 and its fixed manufacturing overhead costs totaled $4,500. The company produced 3,000 units during the year and sold 2,400 units. There were no units in the beginning inventory. Which of the following statements is true?

The ending inventory under variable costing will be $900 lower than the ending inventory under absorption costing.

Mullee Corporation produces a single product and has the following cost structure:

The absorption costing unit product cost is:

$128 per unit

WV Construction has two divisions: Remodeling and New Home Construction. Each division has an on-site supervisor who is paid a salary of $74,000 annually and one salaried estimator who is paid $42,000 annually. The corporate office has two office administrative assistants who are paid salaries of $46,000 and $35,000 annually. The president's salary is $147,000. How much of these salaries are common fixed expenses?

$228,000

Allocating common fixed expenses to business segments:

May cause managers to erroneously discontinue business segments.

Aaron Corporation, which has only one product, has provided the following data concerning its most recent month of operations:

Selling price           $ 90

Units in beginning inventory        0

Units produced           3,400

Units sold             3,000

Units in ending inventory         400

Variable costs per unit:

  Direct materials           $ 21

  Direct labor             $ 38

  Variable manufacturing overhead       $ 6

  Variable selling and administrative expense   $ 4

Fixed costs:

  Fixed manufacturing overhead       $ 54,400

  Fixed selling and administrative expense      $ 3,000

What is the total period cost for the month under the absorption costing?

$15,000

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

What is the total period cost for the month under variable costing?

$499,400