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