Ch 6 Flashcards
Variable costing
Under variable costing only manufacturing costs
That vary with output are treated as product costs
Includes direct materials, direct labor and
variable portion Of manufacturing overhead
Segment
Part or activity of an organization about which
Managers would like cost, revenue or profit data
Period costs
Selling and administrative expenses from each period
Absorption costing
Treats all manufacturing costs as product costs
Regardless if fixed or variable
Difference between treatment of variable and absorption costing?
Variable costing treats fixed manufacturing
overhead as period cost
Absorption costing treats fixed manufacturing overhead
As work in process inventory, then goes to finished goods
Followed by COGS on the income statement
When absorption costing net operating income
= variable costing net operating income?
Theres no change in inventories
Units produced = units sold
When absorption costing net operating income
> variable costing net operating income?
Inventories increase
Units produced > units sold
When absorption costing net operating income <
Variable costing net operating income?
Inventories decrease
Units produced < units sold
Traceable fixed cost of A segment, 3 examples?
Fixed cost that is incurred because of the existence of
The segment
If the segment is eliminated, the fixed cost disappears
Ex. Salary of product manager, maintenance cost of building,
Liability insurance on Disney World
Common fixed cost, example?
Fixed cost that supports operations of more than one segment
But is not traceable in whole or in part to any one segment
Ex. Salary of CEO is common fixed cost across various divisions of general motors
Segment margin
Obtained by deducting traceable fixed cost
Of segment from segment’s contribution margin
Best gauge of long run profitability of segment
Upstream costs
Research and development, product design
Downstream costs
Marketing, distribution and customer service
