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(BQ) Part 2 book "Managerial accounting" has contents: Master budgeting, standard costs and variances, flexible budgets and performance analysis, financial statement analysis, statement of cash flows, capital budgeting decisions, performance measurement in decentralized organizations,.and other contents. | CHAPTER 6 Variable Costing and Segment Reporting: Tools for Management Misguided Incentives in the Auto Industry BUSIN ESS FO CUS LEARNING OBJECTIVES After studying Chapter 6, you should be able to: LO6–1 LO6–2 Source: Marielle Segarra, “Lots of Trouble,” CFO, March 2012, pp. 29–30. Prepare income statements using both variable and absorption costing. LO6–3 When the economy tanks, automakers, such as General Motors and Chrysler, often “flood the market” with a supply of vehicles that far exceeds customer demand. They pursue this course of action even though it tarnishes their brand image and increases their auto storage costs, tire replacement costs, customer rebate costs, and advertising costs. This begs the question why would managers knowingly produce more vehicles than are demanded by customers? In the auto industry, a manager’s bonus is often influenced by her company’s reported profits; thus, there is a strong incentive to boost profits by producing more units. How can this be done you ask? It would seem logical that producing more units would have no impact on profits unless the units were sold, right? Wrong! As we will discover in this chapter, absorption costing—the most widely used method of determining product costs—can artificially increase profits when managers choose to increase the quantity of units produced. ■ Explain how variable costing differs from absorption costing and compute unit product costs under each method. Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ. LO6–4 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it to make decisions. LO6–5 Compute companywide and segment break-even points for a company with traceable fixed costs. LO6–6 (Appendix 6A) Prepare an income statement using super-variable costing and reconcile this approach with variable costing. 233 234 Chapter 6 his chapter describes .
