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Chapter 6

BUS 215 Chapter 6: Variable Costing and Segementing

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BUS 215
Trisha Anderson

• A segment is a part or activity of an organization about which managers would like cost, revenue, or profit data Overview of Variable and Absorption Costing • Variable Costing o Under variable costing, only those manufacturing costs that vary with output are treated as product costs. This would usually include direct materials, direct labor, and the variable portion of manufacturing overhead. • Absorption Costing o absorption costing treats all manufacturing costs as product costs, regardless of whether they are variable or fixed • Variable Costing Contribution Formal Income Statement o The variable costing net operating income for each period can always be computed by multiplying the number of units sold by the contribution margin per unit and then subtracting total fixed costs Absorption Costing Income Statement • o The selling and administrative expenses equal the amounts reported in the variable costing income statements; however they are reported as one amount rather than being separated into variable and fixed components. Reconciliation of Variable Costing with Absorption Costing Income Manufacturing Overhead deferred in (released from) inventory = fixed manufacturing overhead in • ending inventories - fixed manufacturing overhead in beginning inventories Segmented Income Statements and the Contribution Approach • Traceable and Common Fixed Costs and the Segment Margin o A traceable fixed costf a segment is a fixed cost that is incurred because of the existence of the segment— if the segment had never existed, the fixed cost would not have been incurred; and if the segment were eliminated, the fixed cost would disappear. o A common fixed cost is a fixed cost that supports the operations of more than one se
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