BUS 215 Chapter Notes - Chapter 6: Earnings Before Interest And Taxes, Total Absorption Costing, Fixed Cost
Document Summary
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, under variable costing, only those manufacturing costs that vary with output are treated as product costs. 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. Even if a segment were entirely eliminated, there would be no change in a true common fixed cost: the segment margin is obtained by deducting the traceable fixed costs of a segment from the segment"s contribution margin. It represents the margin available after a segment has covered all of its own costs. The segment margin is the best gauge of the long-run profitability of a segment because it includes only those costs that are caused by the segment.
