ACCT CHAP 6

Segment CM formula

segment revenue- variable expenses for the segment

Operations divided by product lines, geographical area, manufacturing plants, service centers etc=

segments

What is never a part of product cost

selling and admin costs

Segment break-even calculations include?

traceable fixed expenses

When should costs be allocated to segments for internal decision-making purposes

when the allocation base actually drives the cost being allocated

How to calculate variable costing net income

# of units sold X CM per unit - total fixed cost

Salary for a manager that works over the manufacturing plant for a location. Income statements are prepared for each plant and each product made. What happens to the salary?

Salary is a traceable fixed cost to the plant and a common fixed cost for the individual product lines made in the plant

Cost allocation does not impact what in a company?

The company as a whole

Whats the main difference in net operating income between the two types of costing

Timing of when fixed MOH is expensed

How do you find the breakeven point in sales for a certain segment if you are given fixed expense, %CM and traceablne fixed expense?

Traceable fixed / CM%

When computing a segment margin, what costs are charged to the particular segment?

Traceable fixed costs

Total COGS=

Unit amount sold in the period X Unit cost

Variable costing income statement focuses on what?

Variable and fixed costing

When should a segment be discontinued

When the segment margin is negative and when the CM doesn't cover traceable fixed costs

How to find fixed cost using variable costing?

incurrance of fixed manufacturing OH cost + fixed selling and admin costs

What manufacturing costs are treated as product costs under variable costing

only variable manufacturing costs

Variable costing treats fixed MOH as what kind of cost

period

An absorption costing income statement focuses on what?

period and product costing

absorption costing treats fixed manufacturing OH as what

product cost

absorption costing income statement

sales -total COGS =gross margin -total selling/admin cost =net operating income

Under absorption costing, fixed MOH accumulates in which accounts until units of product are sold

Inventory on balance sheet

What are segmented income statements best used for?

May be prepared for activities at many levels in a company

How do you calculate the expected profit impact of discontinuing a division?

(Sales X %increase) X (CM/Sales) + Loss of that division

How do you calculate total variable cost on variable costing income statement?

(Variable manufacturing costs+variable selling and admin costs) X units sold

What type of costing is used for external reporting?

Absorption

Which costing method generally results in higher net income in periods when inventory increases?

Absorption costing

How are segmented income statements broken down?

By department and then by product lines within each department

How is the segment margin obtained?

CM-traceable fixed costs

Which income statement shows CM and which shows gross margin?

CM= variable costing Gross Margin= absorption costing

What happens when a segment is eliminated

Common fixed cost will remain unchanged and traceable fixed cost will disappear

If all three segments of a company a company with 10,000 in fixed costs are at break even, what happens to net income

Company has a overall net operating loss of 10,000

Which costs are included in product costs under absorption costing

DL, DM, FMOH and VMOH

How to find unit product cost under variable costing

DM+DL+VMOH

Unit product cost using variable costing

DM+DL+VMOH

How to find unit product cost under absorption costing

DM+DL+VMOH+(FMOH/#produced)

How to calculate unit product cost under absorption costing with direct materials, labor, variable MOH, fixed MOH, units produced and units sold

DM+DL+VMOH+(FMOH/units produced)

What costs make up the manufacturing cost per unit of a product under variable costing

Direct labor, direct materials and variable MOH

What cost is variable under super-variable costing?

Direct materials

What is the only variable cost under super-variable costing?

Direct materials

How do you find unit product cost using variable costing?

Direct materials + direct labor + Variable manufacturing OH

Direct labor and all MOH are treated how under super-variable costing

Fixed

What costs are included in product costs under absorption costing

Fixed MOH, Variable MOH, direct labor and direct materials

What are the two general costing approaches used by manufacturing companies to value inventory and cost of goods sold

absorption and variable costing

What is required by GAAP and IFRS

absorption costing

What does it mean to absorption and variable costing if the number of units produced equals the number of units sold

absorption costing net income is equal to variable costing net income and under both types of costing, all fixed OH incurred flows to the income statement

Common mistakes made by companies when assigning costs to segments include what

allocating common fixed costs, omitting costs that should be included and inappropriately assigning traceable fixed costs

Allocating what will cause an otherwise profitable segment to appear unprofitable

common fixed costs

You should avoid allocating what to segments?

common fixed costs

Segment margin is obtained by deducting what from what

deducting the traceable fixed costs from the segments CM

Manufacturing cost per unit of a product under variable costing

direct labor, direct materials and variable OH

Absorption and variable costing net income =

equal when there is no beginning/ending inventory and when the number of units produced equals the number of units sold

Fixed MOH costs in variable costing

fixed MOH is treated as a period cots and expensed in full each period

Fixed MOH costs in Absorption costing

fixed MOH is treated as part of the per unit product cost and expensed as units are sold

advocates of variable costing believe what?

fixed costs are not caused by and cannot be traced to any specific unit that is produced and that fixed MOH is a period cost

Will total fixed costs on a super variable costing income statement be higher or lower than total fixed cost on a traditional variable costing income statement

higher than

Problems that could occur do to a result in treating fixed OH when using absorption costing

inappropriate pricing decisions and decisions made to drop products that are profitable