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What Is A Segment?: in Financial Reporting
What Is A Segment?: in Financial Reporting
In Financial Reporting
It is any part of the business
that has separate financial
information and a separate
management strategy.
Reportable Segments
In Financial Accounting 1. Segment revenue is10% or more of the
it is a discrete business combined revenue.
unit for which separate 2. The absolute amount of profit or loss of the
financial information is segment is10% or more.
prepared and evaluated by 3. Segment assets are10% or more of the
combined assets.
an operating decision
4. 75% threshold
maker within the
organization
In Managerial Accounting
A Segment is any part or activity of an organization
about which a manager seeks cost, revenue, or profit
data
Contribution Format
+ Sales
= Contribution margin
Uncontrollable Costs
Uncontrollable costs are those that are not under the control of a
specified manager. These cannot be influenced by decisions or actions of the
manager. These costs are imposed by the top management or allocated to
several departments. For example, a company-wide advertising cost that is
allocated by the central office to different departments is not under the
control of the department heads.
SEGMENTED INCOME STATEMENT
A segmented income statement is a managerial accounting tool that
breaks the income statement down into different categories. It could be a
manufacturing company that produces and sells different types of goods,
or a retail company that has different product segments. It breaks down
the revenue, cogs, and if possible operational costs between the products
or divisions. Another type could be if a large company has many different
divisions or types of operating income under one parent company they
could segment the income statement between those divisions.
Levels of Segmented Income
Statements
= $170,000+85,000
0.54
= $472,222
Segmented Income Statements – Break-even
Analysis
= $90,000
0.50
= $80,000
0.60
source: https://courses.lumenlearning.com/sac-
managacct/chapter/segment-analysis/
Costs
DIRECT INDIRECT
the responsibility
for the
benefit received incurrence of
the expense
EXAMPLES:
BENEFIT RESPONSIBILITY
RECEIVED FOR INCURRENCE
Failure to trace
costs directly
Inappropriate
allocation
base
A cost for which there is a direct, cause-and-effect relationship with a
process, product, customer, geographical area, or other cost object.
If the cost object goes away, then the traceable cost associated with it
should also disappear.
are costs that are not traceable to a specific segment within the
business.
These are costs that fund people, resources or activities that support
more than one segment within the business.
Identifying Traceable Fixed Costs
10-33
No computer No computer
division means . . . division manager.
Identifying Common Fixed Costs
10-34
Common Costs
Traceable Common
SEGMENTS DEFINED AS DEPARTMENT
Department-
specialized
functional
area within
an
organization
SEGMENTS DEFINED AS DIVISIONS
TAX INDIVIDUAL BUSINESS
DEPARTMENT TAX DIVISION TAX DIVISION
– VARIABLE COSTS
_____________________________________________________________________________________
CONTRIBUTION MARGIN
SEGMENT MARGIN
FOR EVALUATION PURPOSES IN
SEGMENT REPORTING, COMMON
COSTS ARE NOT ALLOCATED
Example
Negative
Segment
Margin
• In making a decision of whether to
continue or discontinue that segment
or product line
A. B.
Privately-held Publicly-held
entities entities
D.
C.
None of the
Both a and b
above
B.
ANSWER Publicly-held
entities
ENUMERATION:
A. B.
Direct Indirect
B.
Benefit received
ANSWER and the
responsibility for
the incurrence of
the expense
What are the two basic guidelines for
allocating indirect fixed expenses?
A. B.
Benefit received
Benefit received and
and the
the probability for
responsibility for
the incurrence of
the incurrence of
the expense
the expense
B.
Benefit received
ANSWER and the
responsibility for
the incurrence of
the expense
Represents the margin available
after a segment has covered all of its
cost
A. B.
C.
SEGMENT SEGMENT
SEGMENT
MARGIN REPORTING
A.
ANSWER SEGMENT
MARGIN
SEGMENT MARGIN IS THE BEST GAUGE OF THE
LONG-RUN PROFITABILITY OF A SEGMENT
TRUE FALSE
ANSWER TRUE
MEASURES THE AMOUNT OF PROFIT EARNED
DUE TO THE EFFICIENCY OF ANY OPERATION IN
A BUSINESS
A. B.
COST PROFITABILITY
PERFORMANCE ANALYSIS
REPORT REPORT
B.
PROFITABILITY
ANSWER ANALYSIS
REPORT