15 -1 segment reporting and performance evaluation chapter
Post on 20-Dec-2015
239 views
TRANSCRIPT
15 -1
Segment Segment Reporting and Reporting and Performance Performance EvaluationEvaluation
CHAPTERCHAPTER
15 -2
1. Discuss the differences between variable and absorption costing.
2. Explain how variable costing 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.
ObjectivesObjectivesObjectivesObjectives
After studying this After studying this chapter, you should chapter, you should
be able to:be able to:
After studying this After studying this chapter, you should chapter, you should
be able to:be able to:
15 -3
4. Show how variable costing can be used in planning and control.
ObjectivesObjectivesObjectivesObjectives
15 -4
Direct materials
Direct labor
Variable overhead
Variable costing assigns only variable
manufacturing costs to the product.
Variable costing assigns only variable
manufacturing costs to the product.
15 -5
Absorption costing assigns all manufacturing costs to
the product; this adds fixed overhead to the formula.
Absorption costing assigns all manufacturing costs to
the product; this adds fixed overhead to the formula.
Direct materials
Direct labor
Variable overhead
Fixed overhead
15 -6
Units in beginning inventory ---
Units produced 10,000
Units sold ($300 each) 8,000
Normal volume 10,000
Inventory Valuation
Variable cost per unit:
Direct materials
$ 50Direct labor
100Variable overhead
50Variable selling and administrative
10
Fixed costs:
Fixed overhead
$250,000Fixed selling and administrative
100,000
15 -7
Direct materials $ 50 $ 50
Direct labor 100 100
Variable overhead 50 50
Fixed overhead 25
Unit CostUnit CostUnit CostUnit Cost
Variable Absorption costing costing
$250,00010,000
$250,00010,000
15 -8
Direct materials $ 50 $ 50
Direct labor 100 100
Variable overhead 50 50
Fixed overhead 25
Total $200 $225
Unit CostUnit CostUnit CostUnit Cost
Variable Absorption costing costing
15 -9
Fairchild CompanyFairchild CompanyVariable-Costing Income StatementVariable-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 CompanyFairchild CompanyAbsorption-Costing Income StatementAbsorption-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
Variable costing net income $370,000Fixed portion of ending inventory
(2,000 units x $25) 50,000Absorption costing net income $420,000
15 -11
Production, Sales, andProduction, Sales, andIncome RelationshipsIncome Relationships
Production, Sales, andProduction, Sales, andIncome RelationshipsIncome Relationships
Production > Sales Absorption NI > Variable NI
Production < Sales Absorption NI < Variable NI
Production = Sales Absorption NI = Variable NI
If Then
15 -12
Example
Data for Belnip, Inc., for years 2002, 2003, and 2004 follows:
Variable cost pr unit:Direct materials
$4.00Direct labor
1.50Variable overhead (estimated and
actual)0.50
Variable selling and administrative0.25
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.
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
Variable-Costing Income StatementVariable-Costing Income StatementVariable-Costing Income StatementVariable-Costing Income Statement
2002 2003 20042002 2003 2004SalesLess variable expenses:
Variable cost of goods soldVariable selling and admin.
Contribution marginLess fixed expenses:
Fixed overheadFixed selling and admin.
Net income
$1,500.00 -900.00
-87.50 $ 562.50
-150.00
-0.50$ 367.50
$1,000
-600 -25$ 375
-150 -50$ 367
$2,000
-1,200 -50$ 750
-150 -50$ 550
BIBI $ 0$ 0Cost of GMCost of GM 900900GAFSGAFS $900$900Less: EILess: EI 0 0VCof GSVCof GS $900$900
BIBI $ 0$ 0Cost of GMCost of GM 900900GAFSGAFS $900$900Less: EILess: EI 300 300VCof GSVCof GS $600$600
BIBI $ 300$ 300Cost of GMCost of GM 900 900GAFSGAFS $1,200$1,200Less: EILess: EI 0 0VCof GSVCof GS $1,200$1,200
BIBI $ 300$ 300Cost of GMCost of GM 900 900GAFSGAFS $1,200$1,200Less: EILess: EI 0 0VCof GSVCof GS $1,200$1,200
15 -14
Absorption-Costing Income StatementAbsorption-Costing Income StatementAbsorption-Costing Income StatementAbsorption-Costing Income Statement
2002 2003 20042002 2003 2004SalesLess: Cost of goods soldGross marginLess: Selling and admin. exp.Net income
$1,500.00-1,050.00$ 450.00 87.50
$ 362.50
$1,000 700
$ 300 75
$ 225
$2,000 1,400$ 600 100$ 500BIBI $ 0$ 0
Cost of GMCost of GM 1,0501,050GAFSGAFS $1,050$1,050Less: EILess: EI 0 0Cof GSCof GS $1,050$1,050
BIBI $ 0$ 0Cost of GMCost of GM 1,050 1,050GAFSGAFS $1,050$1,050Less: EILess: EI 350 350Cof GSCof GS $ 700$ 700
BIBI $ 350$ 350Cost of GMCost of GM 1,050 1,050GAFSGAFS $1,400$1,400Less: EILess: EI 0 0Cof GSCof GS $1,400$1,400
15 -15
Absorption costing income – Variable costing income = Fixed overhead x (Units
produced – Units sold)
Absorption costing income – Variable costing income = Fixed overhead x (Units
produced – Units sold)
$500,000 – $550,000 = $1 x (150,000 – 200,000)
$500,000 – $550,000 = $1 x (150,000 – 200,000)
2004200420042004
15 -16
If income performance is expected to reflect managerial performance, then managers have the right to expect--
1. As sales revenue increases from one period to the next, all other things being equal, income should increase.
2. As sales revenue decreases from one period to the next, all other things being equal, income should decrease.
3. As sales revenue remains unchanged from one period to the next, all other things being equal, income should remain unchanged.
15 -17
Segment ReportingSegment ReportingSegment ReportingSegment Reporting
Elcom, Inc.Income Statement, 2004
Absorption-Costing Basis
Sales $400,000 $290,000 $690,000Less: Cost of goods sold 350,000 300,000 650,000Gross margin $ 50,000 $ -10,000 $ 40,000Less: Selling and administrative exp. 30,000 20,000 50,000Net income or loss $ 20,000 $ -30,000 $ -10,000
Stereos Video Recorders Total Stereos Video Recorders Total
15 -18 Elcom, Inc.Income Statement, 2004Variable-Costing Basis
Sales $400,000 $290,000 $690,000Less variable expenses:
Variable C of GS -300,000 -200,000 -500,000Variable S & A -5,000 -10,000 -15,000
Contribution margin $ 95,000 $ 80,000 $175,000Less direct fixed exp.:
Direct fixed overhead -30,000 -20,000 -50,000Direct S & A -10,000 -5,000 -15,000
Segment margin $ 55,000 $ 55,000 $110,000Less common fixed exp.:
Common fixed OH -100,000Common S & A -20,000
Net income or loss $-10,000
Stereos Video Recorders Total Stereos Video Recorders Total
15 -19
Barton, Inc.Barton, Inc.Barton, Inc.Barton, Inc.
Profit forProfit for Chain Stores 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.Barton, Inc.Barton, Inc.Barton, Inc. Profit forProfit for Independent Toy Stores 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.Barton, Inc.Barton, Inc.Barton, Inc.
Profit for FairsProfit 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
The EndThe EndThe EndThe End
Chapter FifteenChapter Fifteen
15 -23