Segment Reporting
– breaking income statement down by segment
– flexible
– any part of company for which profit data is desired
(i.e., geographic region, product line, stores, districts)
Assigning costs to segments
1. variable costs of the segment should be charged to the segment
2. fixed costs – traceable and common
a. traceable fixed costs (those fixed costs that would be eliminated
if the segment were eliminated) — charged to the segment
b. common fixed costs (caused by more than one segment and
would not be eliminated if the segment were eliminated) —
should not be charged to the segment
Contribution margin is calculated for each segment Sales
= segment sales – segment variable expenses -VE
– useful in ST decisions like utilization of capacity and special orders CM
Segment margin is calculated for each segment Sales
= segment CM – traceable fixed expenses -VE
– useful in LT decisions like capacity changes and pricing CM
– best guage of LT profitability -Traceable FE
SM
Traceable fixed expenses can become common fixed expenses
– as company is divided into smaller segments, traceable FEs of one segment can become
common FE of further segmented statement
Chapter 6 – Segment Reporting
ACCO 1031 – Melis