Garrison 14e Practice Exam - Chapter 6
Garrison 14e Practice Exam - Chapter 6
Garrison 14e Practice Exam - Chapter 6
Print these pages. Answer each of the following questions, explaining your answers or showing your
work, and then compare your solutions to those provided at the end of the practice exam.
1. Bittman Company produces picture frames. During its first year of operations, the company
produced 10,000 frames and sold 9,000 frames at $12 per frame. The company’s cost information
includes the following:
Part (a)
Compute the unit product cost under absorption costing.
Part (b)
Compute the unit product cost under variable costing.
Part (c)
Prepare an income statement using absorption costing.
Part (d)
Prepare an income statement using variable costing.
Part (e)
Explain the difference in the net operating income determined under the absorption and variable
costing methods.
2. Lereve Company has recorded the following information about the results of its operations for the
fourth quarter:
Based on this information, prepare a segmented income statement for the quarter and comment on
the results.
GNB 14e Practice Exam Solutions – Chapter 6
1. Part (a) Solution (Learning Objective 1):
Since common fixed costs are not traceable to the divisions, they should not be included in segment
margins.
As can be seen from the data, the company’s divisions have performed with positive segment
margins, but as a whole the company has a net operating loss for the quarter due to the significant
amount of common fixed costs. If possible, the company needs to increase its revenues and/or
decrease its costs (particularly fixed costs) to generate operating income instead of loss.