Acct 226 Week 6 Notes
Acct 226 Week 6 Notes ACCT 226 - 001
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This 3 page Class Notes was uploaded by Madeline Lacman on Tuesday October 4, 2016. The Class Notes belongs to ACCT 226 - 001 at University of South Carolina taught by Debbie Huguley Brumbaugh (P) in Fall 2016. Since its upload, it has received 4 views. For similar materials see Introduction to Managerial Accounting in Accounting at University of South Carolina.
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Date Created: 10/04/16
Variable costing… supports decision making Variable costing correctly identifies the additional variable costs incurred to make one more unit Decentralization and Segment Reporting A segment is any part or activity of an organization about which a manager seeks cost Keys to Segmented Income Statements There are 2 keys to building segmented income statements 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 a segment margin Identifying Traceable Fixed Costs Traceable fixed costs arise because of the existence of a particular segment and would disappear over time if the segment itself disappeared Identifying Common Fixed Costs Common fixed costs arise because of the overall operation of the company and would not disappear if any particular segment were eliminated Ex: we don’t have a computer division, but still have a company president Segment Margin Segment margin: best gauge of the long-run profitability of a segment Computed by subtracting the traceable fixed costs of a segment from its contribution margin Don’t allocate common costs to segments Levels of Segmented Statements Webber, Inc has 2 divisions Computer and TV divisions Our approach to segment reporting uses the contribution format Cost of goods sold consists of variable manufacturing costs Fixed and variable costs are listed in separate sections Common costs should not be allocated to the divisions Traceable Costs Can Become Common Costs Fixed costs that are traceable to one segment can become common if the company is divided into smaller segments Divisional margin = Product line margin – common costs Segmented Income Statements – Decision Making and Break-even Analysis Once a company prepares contribution format segmented income statements, it can use those statements to make decisions and perform break-even analysis A business segment’s break-even point is computed by dividing the traceable fixed costs by its contribution margin ratio Notice the $25,000 of companywide common fixed costs are excluded from the segment break-even calculations because the common FC are not traceable to segments Omission of Costs Costs assigned to a segment should include all costs attributable to that segment from the company’s entire value chain Business Functions making up the value chain o R&D o Product Design o Manufacturing o Marketing o Distribution o Customer Service Inappropriate Methods of Allocating Costs Among Segments Failure to trace costs directly Inappropriate allocation base Common Costs and Segments Common costs should not be arbitrarily allocated to segments based on… Companywide Income Statements Both US GAAP and IFRS require absorption costing for external reports Since absorption costing is required for external reporting, most companies also use it for internal reports rather than incurring the additional cost of maintaining a separate variable cost system for internal reporting When you go to calculate the fixed OH, per unit that youre assigning, you calculate the cost per unit for each period based on the number of units Chapter 7 Activity-based costing ABC is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity ABC is a good supplement to our traditional cost system How Costs are Treated Under Activity-based Costing Activity measure – an allocation base in an activity-based costing system The term cost driver is also used to refer to an activity measure ABC defines 5 levels of activity that largely do not relate to the volume of units produced Manufacturing companies typically combine their activities into 5 classifications Unit-level activity Batch-level activity Product-level activity Customer-level activity Facility (organization)-level activity Manufacturing overhead is allocated to products using a single plantwide overhead rate based on machine hours
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