Term
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Definition
| fixed cost that is incurred because of the existence of a particular business segment and would be eliminated if segment where eliminated |
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Term
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Definition
| fixed cost that supports more than one business segment, but is traceable in whole or in part to any segment. if segment eliminated there is still no change |
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Term
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Definition
| = (segment's contribution margin - its traceable fixed cost) represents the margin available after segment has covered all of its own traceable costs |
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Term
| general guideline to identify traceable cost vs common cost |
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Definition
| treat as traceable costs, only costs that disappear over time if segment disappeared |
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Term
| when should product be dropped |
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Definition
| when it is unable to cover its segment margin |
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Term
| in absorption costing income statements |
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Definition
| categorize costs by function ( manufacturing vs selling and admin |
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Term
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Definition
| all Manufacturing costs flow through COGS and all S&A expenses listed as period costs |
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Term
| variable costing behavior |
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Definition
| costs are categorized according to how they behave (variable or fixed) expenses |
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Term
| when units produced exceed units sold |
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Definition
inventories increase, net operating income is higher under absorption costing.
because it is deferred in inventory account on balance sheet. |
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Term
| when units sold exceed the units produced |
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Definition
inventories decrease, net operating income is lower under absorption costing than under variable costing.
Because released to COGS account on IS |
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Term
| when units produced and units sold are equal |
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Definition
| no change in inventories occurs and absorption costing and variable costing are the same |
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Term
| Manufacturing Overhead deferred in inventory |
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Definition
| = fixed MOH in ending inventories - fixed MOH in beginning inventories |
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Term
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Definition
includes only variable manufacturing costs (DM, DL, and VMOH) in unit product cost.
Based on CM format. |
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Term
| Absorption Costing Method |
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Definition
| includes all manufacturing costs (DM DL and VMOH and FMOH) in unit product cost |
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Term
| 3 common mistakes companies make when assigning costs to segments |
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Definition
1) they omit some costs
2) inappropriately assign traceable fixed costs
3) arbitrarily allocate common fixed costs |
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Term
| absorption costing for segmented income statements lead to: |
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Definition
| under costing of segments and omission of upstream and downstream costs |
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Term
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Definition
| selling and admin expenses are reported as a single amount and equal amounts reported on variable costing IS |
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Term
| if all segments are at the break even point |
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Definition
| common fixed expenses have not been covered |
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