Professional Documents
Culture Documents
CHAPTER
Segment
Reporting and
Performance
Evaluation
15 -2
Objectives
1. Discuss the differences between
After studying this variable and
absorption costing.
chapter, you should
2. Explain how variable costing
be able to: is useful in
evaluating the performance of a manager.
3. Prepare a segmented income statement based
on a variable-costing approach, and
demonstrate how to use this format with
activity-based costing to assess customer
profitability.
15 -3
Objectives
4. Show how variable costing can be used in
planning and control.
15 -4
Variable costing
assigns only variable
manufacturing costs to
the product.
Direct materials
Direct labor
Variable overhead
15 -5
Inventory Valuation
Units in beginning inventory ---
Units produced 10,000
Units sold ($300 each) 8,000
Normal volume 10,000
Fixed costs:
Variable cost per unit:
Direct overhead
Fixed materials $250,000
$ 50
Direct selling
Fixed labor and administrative 100,000
100
Variable overhead 50
Variable selling and administrative 10
15 -7
Unit Cost
Variable Absorption
costing costing
Direct materials $ 50 $ 50
Direct labor 100 100
Variable overhead 50 50
Fixed overhead 25
$250,000
10,000
15 -8
Unit Cost
Variable Absorption
costing costing
Direct materials $ 50 $ 50
Direct labor 100 100
Variable overhead 50 50
Fixed overhead 25
Total $200 $225
15 -9
Fairchild Company
Variable-Costing Income Statement
Sales $2,400,000
Less variable expenses:
Variable cost of goods sold $1,600,000
Variable selling and admin. 80,000 1,680,000
Contribution margin $ 720,000
Less fixed expenses:
Fixed overhead $ 250,000
Fixed selling and admin. 150,000 350,000
Net income $ 370,000
15 -10
Fairchild Company
Absorption-Costing Income Statement
Sales $2,400,000
Less: Cost of goods sold 1,800,000
Gross margin $ 600,000
Less: Selling and administrative exp. 180,000
Net income $ 420,000
Example
Data for Belnip, Inc., for years 2002, 2003, and 2004
follows:
Variable cost pr unit:
Direct materials $4.00
Direct labor 1.50
Variable overhead (estimated and
actual) 0.50
Variable selling and administrative 0.25
Estimated fixed overhead was $150,000 each year. Normal
production was 150,000 units and the sales price was $10.
Fixed selling and administrative expenses were $50,000.
15 -13
2004
$500,000 – $550,000 = $1 x
(150,000 – 200,000)
15 -16
Segment Reporting
Elcom, Inc.
Income Statement, 2004
Absorption-Costing Basis
Stereos Video Recorders Total
Sales $400,000 $290,000 $690,000
Less: Cost of goods sold 350,000 300,000 650,000
Gross margin $ 50,000 $ -10,000 $ 40,000
Less: Selling and
administrative exp. 30,000 20,000 50,000
Net income or loss $ 20,000 $ -30,000 $ -10,000
Elcom, Inc. 15 -18
Income Statement, 2004
Variable-Costing Basis
Stereos Video Recorders Total
Sales $400,000 $290,000 $690,000
Less variable expenses:
Variable C of GS -300,000 -200,000 -500,000
Variable S & A -5,000 -10,000 -15,000
Contribution margin $ 95,000 $ 80,000 $175,000
Less direct fixed exp.:
Direct fixed overhead -30,000 -20,000 -50,000
Direct S & A -10,000 -5,000 -15,000
Segment margin $ 55,000 $ 55,000 $110,000
Less common fixed exp.:
Common fixed OH -100,000
Common S & A -20,000
Net income or loss $-10,000
15 -19
Barton, Inc.
Profit for
Chain Stores
Sales $4,725,000
Less: Discounts 393,750
Net sales $4,331,250
Less: Cost of goods sold 2,520,000
Gross profit $1,811,250
Less: Shelf space -112,500
Shipping -157,500
EDI -100,000
Profit $1,441,250
15 -20
Barton, Inc.
Profit for
Independent Toy Stores
Sales $2,625,000
Less: Cost of goods sold 1,400,000
Gross profit $1,225,000
Less: Commissions -131,250
Special packaging -35,000
Profit $1,058,750
15 -21
Barton, Inc.
Profit for Fairs
Sales $150,000
Less: Cost of goods sold 80,000
Gross profit $ 70,000
Less: Fair expense -75,000
Design time -2,100
Setup -1,000
Loss $ -8,100
15 -22
Chapter Fifteen
The End
15 -23