AFM102 Chapter Notes - Chapter 11: Fixed Cost, Earnings Before Interest And Taxes, Financial Statement

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viridianleopard866

20 Mar 2017

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM102

Professor

Jie Joyce Tian

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Document Summary

Decentralized organization: an organization in which decision making is spread throughout the organization rather than being confined to a few top executives. Traceable fixed costs: fixed costs that can be identified with a particular segment and that arise because of the existence of the segment. Common fixed cost: a fixed cost that supports the operations of more than one segment but is not traceable in whole or in part to any one segment. Segment margin: a margin obtained by deducting a segment"s traceable fixed costs from the segment"s contribution margin. Responsibility centre: any business segment whose manager has control over cost or profit or the use of investment funds. Cost centre: a business segment whose manager has control over cost but has no control over revenue or the use of investment funds. Profit centre: a business segment whose manager has control over cost and revenue but has no control over the use of investment funds.

Related Questions

EXERCISE 6-16 Working with a Segmented Income Statement; Break-Even Analysis [L06-4, L06-5] Raner, Harris, & Chan is a consulting firm that specializes in information systems for medical and dental clinics. The firm has two offices—one in Chicago and one in Minneapolis. The firm classi- fies the direct costs of consulting jobs as variable costs. A contribution format segmented income statement for the company's most recent year is given below: Sales ........ Variable expenses .......... Contribution margin ........................... Traceable fixed expenses ....................... Office segment margin .............................. Common fixed expenses not traceable to offices ..... Net operating income ...... Total Company $450,000 100% 225,000 50% 225,000 50% 126,000 28% 99,000 22% 63,000 $ 36,000 8% Office Chicago Minneapolis $150,000 100% $300,000 100% 45,000 30% 180,000 60% 105,000 70% 120,000 40% 78,000 52% 48,000 $ 27,000 18% $ 72,000 24% -16% 1496 Required: 1. Compute the company wide break-even point in dollar sales. Also, compute the break-even point for the Chicago office and for the Minneapolis office. Is the company wide break- even point greater than, less than or equal to the sum of the Chicago and Minneapolis break-even points? Why? By how much would the company's net operating income increase if Minneapolis increased its sales by $75,000 per year? Assume no change in cost behavior patterns. 3. Refer to the original data. Assume that sales in Chicago increase by $50,000 next year and that sales in Minneapolis remain unchanged. Assume no change in fixed costs. a. Prepare a new segmented income statement for the company using the above format. Show both amounts and percentages. b. Observe from the income statement you have prepared that the contribution margin ratio for Chicago has remained unchanged at 70% (the same as in the above data) but that the segment margin ratio has changed. How do you explain the change in the segment mar- gin ratio?

Fill in the blanks with the phrase that best completes the sentence. Some phrases may be used more than once and some not at all.

Phrases:
cost center	revenue center
investment center	lower
profit center	higher
responsibility center

The maintenance department at the local zoo isâ a(n)

The gift shop at the local zoo isâ a(n)

The menswear department of a departmentâ store, which is responsible for buying and sellingâ merchandise, isâ a(n)

The production line at a manufacturing plant isâ a(n)

A(n) BLANK is any segment of the business whose manager is accountable for specific activities.

A division of a beverage manufacturing company responsible for a particular brand of soft drink isâ a(n)

The sales manager in charge of a shoeâ company's northwest sales territory overseesâ a(n)

Managers of cost and revenue centers are at BLANK levels of the organization than are managers of profit and investment centers.

champagnemoose571

Question 1 10 pts A segment of a business probably should bediscontinued if its contribution margin exceeds its controllablefixed costs and its common costs. it cannot produce a contributionmargin. its common costs exceed its contribution margin. it has anet loss. Flag this Question Question 2 10 pts Contribution marginis calculated by deducting fixed costs from revenue. deductingvariable costs and controllable fixed costs from revenue. deductingvariable costs and common costs from revenue. deducting variablecosts from revenue. Flag this Question Question 3 10 pts Which ofthe following is the first step in the decision-making process?Identify workable alternatives Define the problem Considerappropriate nonfinancial factors Evaluate the cost and revenue dataFlag this Question Question 4 10 pts Fixed manufacturing costs arewritten off as current expenses of the period in which theyoccurred when using direct costing. standard costing. absorptioncosting. differential costing. Flag this Question Question 5 10 ptsDirect costing differs from absorption costing in that underabsorption costing all fixed manufacturing overhead is expensed inthe current period. under direct costing all fixed overhead isexpensed in the current period. under absorption costing anincrease in finished goods inventory does not affect the amount offixed costs expensed. under direct costing a portion of the fixedmanufacturing overhead is included in the finished goods inventory.Flag this Question Question 6 10 pts Which is the final step in thedecision-making process? Evaluate the cost and revenue dataIdentify workable alternatives Consider appropriate nonfinancialfactors Make a decision Flag this Question Question 7 10 pts Whichof the following is NOT a consideration when determining whether tocontinue making a part or to buy that part? the opportunity costthe timing of the cash receipts and expenditures the impact onemployees the sunk cost Flag this Question Question 8 10 pts Coststhat are not directly traceable to a segment of a business arecalled sunk costs. common costs. fixed costs. incremental costs.Flag this Question Question 9 10 pts Which of the following shouldNOT be a consideration when deciding whether to make or buy a part?impact on continued supply of the part impact on quality of thepart under each set of circumstances impact on sales to existingcustomers impact on factory employee morale Flag this QuestionQuestion 10 10 pts In making a decision to replace a machine, whichof the following is not relevant? the variable costs of operatingthe old machine the training that workers will need in order to usethe new machine the book value of the old machine the variablecosts of operating the new machine

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AFM102 Chapter Notes - Chapter 11: Fixed Cost, Earnings Before Interest And Taxes, Financial Statement

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