Managerial Accounting Chapter 6

How to get ending inventory cost

to get the ending inventory cost, multiply the per unit product cost by the units in ending inventory

under variable costing fixed manufacturing overhead is

treated as a period cost and is expensed on the current period's income statement

explain how fixed manufacturing overhead costs are shifted from one period to another under absorption costing

under absorption costing, fixed manufacturing overhead costs are included in product costs, along with direct material, direct labor, and variable manufacturing overhead. If some units are not sold at the end of the period, then they are carried over into the next period as inventory When the units are finally sold, the fixed overhead cost that has been carried over with the units is included as part of the costs of goods sold

Distinguish between a traceable fixed cost and common fixed cost. Give several examples of each

A traceable cost of a segment arises specifically because of the existence of that segment if the segment were eliminated, the cost would disappear a common cost supports more than one segment and is not traceable in whole or in part to any one of its segments

Note that selling and administrative expenses are not treated as product costs under either absorption or variable costing

These expenses are always treated as period costs and are charged against the current period's revenue.

Common Costs should not

be allocated to the division because these costs would still exist if a division was eliminated

Traceable fixed cst

A fixed cost that is incurred of the existence of a segment ex: the salary of the Fritos product manager

Segment

Any part or activity of an organization about which a manager seeks costs , revenue or profit data

Prepare a contribution format income statement segmented by product line

Sales Revenue Variable Expense Contribution Margin TRACEABLE FIXED EXPENSE PRODUCT LINE SEGMENT MARGIN COMMON FIXED EXPENSE NOT TRACEABLE TO PRODUCT NOI

Are selling and administrative expenses treated as product costs or as period costs under variable costing?

Selling and administrative expenses are treated as period costs under both variable costing and absorption costing

two keys to building a segmented income statement

a contribution format should be used because it separates fixed from variable costs and it enables the calculation of a contribution margin Traceable fixed costs should be separated from common fixed costs to enable the calculation of segment margin

Common Fixed Cost

a fixed cost that supports the operations of more than one segment but is not traceable in whole or in part to any one segment. even if a segment were entirely eliminated there would be no change in a true common fixed cost ex: the salary of the CEO of General Motors the cost of the receptionist's salary at an office shared by a number of doctors is a common fixed cost to the doctors - the cost is traceable to the office, but not tie individual doctors

what is a segment of an organization

a segment is any part or activity of an organization about which a manager seeks cost, revenue, or profit data examples are departments, operations, sales territories, divisions, and product lines

What is the difference between absorption costing and variable costing

absorption and variable costing differ in how they handle fixed manufacturing overhead. Under absorption costing, fixed manufacturing overhead is treated as a product cost and is an asset until products are sold Absorption is required by GAAP and Variable is used only for Management Accounting only

Segment Margin

obtained by deducting the traceable fixed costs of a segment from the segment's contribution margin the segment margin is the best gauge of the long-run profitability of a segment