M. Accounting: Chapter #6

A part or activity of an organization about which managers would like cost, revenue, or profit data. Company's operations can be divided by product lines, geographical area, manufacturing plants, service centers or sales territories, aka segments.

Segment

For external reporting, income statements are generally prepared using costing, while costing is used for internal decision making purposes.

absorption/ variable

When the units produced are equal to the units sold, the net operating income computed using the variable costing method is ______ the net operating income using the absorption costing method.

is equal to

When the units produced exceed the units sold, the net operating income computed using the variable costing method is ______ the net operating income using the absorption costing method

is less than

When the units produced are less than the units sold, the net operating income computed using the variable costing method is ______ the net operating income using the absorption costing method.

is qreater than

When the number of units produced is greater than the number of units sold, variable costing net operating income will be ________.

less than absorption costing net operating income

Segment Margin

1. In preparing a segmented income statement, the variable expenses are deducted from sales to yield the contribution margin for each segment. 2. The segment margin represents the margin available after a segment has covered all of its own costs. 3. The segment margin is the best gauge of the long-run profitability of a segment because it includes only those costs that are caused by the segment. 4. The segment margin is obtained by deducting the traceable fixed costs of a segment from the segment's contribution margin.

Which of the following costing approaches is best suited for cost-volume-profit analysis?

Variable

The difference between absorption costing net operating income and variable costing net operating income can be explained by the way these two methods account for ________.

fixed overhead costs

Under absorption costing, fixed overhead is treated like a variable cost because a portion of the total cost is allocated to each unit produced, rather than being expensed as one large sum.

true

Variable costing net income may be computed by multiplying the number of units sold by the contribution margin per unit and subtracting total fixed expenses.

true

Absorption costing income statements ignore ________.

variable and fixed cost distinctions