University:
Massachusetts Institute of Technology
Course:
15.501 | Introduction to Financial and Managerial Accounting
Academic year:

2022
Views:

44

Pages:

3
Author:

Annalise Mayer

Variable Costing Segmented Income Statement Traceable fixed cost: a cost incurred because of the existence of the segment. If the segment were eliminated, the fixed cost would disappear - Ex: manager of the phone division's salary. No phone division = no salary - Charged to segments Common Fixed Cost: is a fixed cost that supports the operations of the company. - Is it not traceable to any one segment and would not change if the segment was eliminated - Ex: salary of a CEO - Not be charged to segments **a cost could be both a traceable fixed cost of one segment BUT a common cost of another segment Segment Margin - A segment's (Contribution Margin) - (Traceable Fixed Costs) - Represents the margin available after a segment has covered all of its own traceable costs - This is the best gauge of the long-run profitability of a segment because it includes only those costs that are caused by the segment - Segmented income statements can be used to understand the profit impact of discontinuing a product line. *this information must be in annual reports Common fixed cost could be depreciation on machinery Common Mistakes in Segmented Income Statement: 1. The omission of costs a. Absorption costing = product is under costed b. Omission of upstream and downstream costs 2. The use of inappropriate methods in assigning traceable costs among segments a. Failure to trace costs directly b. Inappropriate allocation base 3. Assigning common costs to segments. a. making an otherwise profitable segment appear to be unprofitable b. managers are held accountable for costs that they cannot control Break-evens Whole company: Segment Break-even point

Variable Costing Lecture

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