Chapter 6: Segmentation Flashcards
Decentralization
Authority and responsibility are delegated to the company
Segment Reporting
financial data for parts of the company to measure
- cost contamination
- profitability
- use of operating assets
Segments are divided into
3 groups known collectively as responsibility centers (profit, objective, and measurement)
Profit Centers
Managers can control revenue and expenses
The objective of the profit center
Minimize cost and maximize revenue
The measurement of the profit center
segmented income statement using contribution margin income statement format
Traceable Fixed Costs
It would disappear if the segment is dropped
Common Fixed Costs
Supports more than 1 segment but cannot be traced in whole or in part to any 1 segment
Contribution Margin is useful in decisions relating to:
changes in volume using existing capacity (no change in FC) and for special orders
Segment Margin
The best measure of long-term profitability of the segment
A segment must cover its own costs
True
If a company is operating at the breakeven point
Its Margin of safety will be equal to zero
All other thins the same, if a divisions traceable fixed expenses decrease then the division’s segment margin will increase
True
Breakeven Point Formula
(Traceable FC + Common FC)/Company CMR
