chapter 6
segment margin
-obtained by deducting the traceable fixed costs of a segment from the segment contribution margin -represents the margin available after a segment has covered all of its own costs
variable costing definiton
-only those manufacturing costs that vary with output are treated as product costs -fixed man overhead is treated as a period cost
period costs
-under both methods VS+A and FS+A
what is the basic difference between absorption costing and variable costing
absorption and variable costing different in how they handle fixed manufacturing overhead. under absorption costing, fixed manufacturing, overhead is treated as a product cost and hence is an assist until products are sold. under variable costing, fixed manufacturing overhead is treated as a period cost and is expensed on the currents periods income statement
traceable costs
inccurred because existing segment
are selling and administrative expenses treated as product costs or as period costs under variable costs
selling and administrative expenses are treated as period costs under both variable costing and absorption costing.
common fixed costs
supports the operations of more than 1 segment
absorption costing
treats all manufacturing costs as product costs, regardless of variable or fixed
product costs under variable method
DL+DM+VOH
product costs under absorption
DL+DM+VOH+FOH FOH= fixed man oh/units produced
explain how fixed manufacturing overhead costs are shifted from one period to another
Under absorption costing, fixed manufacturing overhead costs are included in product costs, along with direct materials, direct labor, and variable manufacturing overhead. If some of the units are not sold by the end of the period, then they are carried into the next period as inventory. When the units are finally sold, the fixed manufacturing overhead cost that has been carried over with the units is included as part of that period's cost of goods sold.
if units produced and units sales are equal, which method would you expect to show the higher net operating income, variable costing or absorption
if production and sales are equal, net operating income should be the same under absorption and variable costing. when production sales, inventories do not increase or decrease and therefore under absorption costing fixed manufacturing overhead cost cannot be deferred in inventory or released from inventory
explain how the segment margin differs from contribution margin
the contribution margin is the difference between sales revenue and variable expenses. the segment margin is the amount remaining after deducting traceable fixed expenses from the contribution margin. the CM is useful as a planning tool for many decisions, particularly those in which fixed costs don't change. The segment margin is useful in assessing the overall profitability of a segment.
