RSM222H1 Chapter Notes - Chapter 11: Balanced Scorecard, Income Approach, Earnings Before Interest And Taxes
Document Summary
Segment reporting: decentralized organization: decision making spread throughout organization, requires segment reporting to analyze and evaluate decisions of segment managers, segmented income statements usually in contribution format, fixed cots divided between traceable fixed costs and common fixed costs. Segments can be based on location, product, etc. Only traceable fixed costs are charged to segment. Non-traceable (common) fixed costs kept separate from segments. Costs are never arbitrarily assigned to a segment. Margin after segment has covered its own costs. Contribution margin useful for short-run changes such as temporary increase in: segment margin most useful in long-run decision of dropping segments production. Problems in cost assignment: omission of costs. Omits upstream (such as research and development) and downstream (such as sales and customer support) costs from analysis. Inappropriate allocation base: arbitrarily dividing common costs among segments. Allocation base is not a cost driver. Return on investment: roi = operating income / average operating assets, operating income = ebit.
