Question

First question is related to 2 and 3

1. Fixed manufacturing overhead is included in product costs under:
2. 1. Option A
   2. Option B
   3. Option C
   4. Option D
3. Evans Company produces a single product. During the most recent year, the company had a net operating income of $90,000 using absorption costing and $84,000 using variable costing. The fixed overhead application rate was $6 per unit. There were no beginning inventories. If 22,000 were produced last year, then sales for last year were:
   1. 15,000 units
   2. 21,000 units
   3. 23,000 units
   4. 28,000 unit
4. A national retail company has segmented its income statement by sales

territories. If each sales territory statement is further segmented by individual stores, which of the following will most likely occur?

1. 1. some common fixed expenses in the sales territory segmented statement will become traceable fixed expenses in the individual store segmented statement.
   2. Some traceable fixed expenses in the sales territory segmented statement will become fixed expenses in the individual store segmented statement
   3. The sum total of the individual stores’ segment margins in each sales territory will be equal to the segment margin for the sales territory
   4. The sum total of the sales territory segment margins will equal the total net operating income for the entire company.
2. Under variable costing, fixed manufacturing overhead is:
   1. Carried in a liability account
   2. Carried in an asset account
   3. Ignored
   4. Expensed as a period cost
3. If a cost is a common cost of the segments on a segmented income statement, the cost should:
   1. Be allocated to the segments on the basis of segment sales
   2. Not be allocated to the segments
   3. Excluded from the income statement
   4. Treated as a product cost rather than as a period cost

Answer 1

Fixed manufacturing overhead is included in product costs under variable costing

1. 21000 Units is the correct answer

Since absorption costing net operating income was greater than its variable costing net operating income by $6,000, it must have deferred $6,000 of fixed manufacturing overhead costs in inventory under absorption costing. Fixed manufacturing overhead costs deferred in inventory under absorption costing = Fixed manufacturing overhead cost per unit * Increase in units in inventory

Therefore, $6,000 = $6 per unit * Increase in units in inventory

Increase in units in inventory = $6,000 / $6 per unit = 1,000 units

Therefore, since there were no beginning inventories and 1,000 units of the 22,000 units that were produced were in ending inventories, sales must have been 21,000 units.

2. Correct answer is Option B i.e. Some traceable fixed expenses in the sales territory segmented statement will become fixed expenses in the individual store segmented statement

3. Correct answer is Option D i.e. expenses as period cost

4. Correct Answer is Option B i.e.not be allocated to the segments