Chapter 4 Variable Costing and Segment Reporting

Absorption costing

A costing method that includes all manufacturing costs-direct materials, direct labors, and both variable and fixed manufacturing overhead-in unit product costs.

Common fixed cost

A fixed cost that supports more than one business segment, but is not traceable in whole or in part to any one of the business segments.

Segment

Any part or activity of an organization about which managers seek cost, revenue, or profit data.

Segment margin

A segment’s contribution margin less its traceable fixed costs. It represents the margin available after a segment has covered all of its own traceable costs.

Traceable fixed cost

A fixed cost incurred because of the existence of a particular business segment and that would be eliminated if the segment was eliminated.

Variable costing

A costing method that includes only variable manufacturing costs-direct materials, direct labors, and variable manufacturing overhead-in unit product costs.