introduction chapters
chapter 23
Reporting Techniques in
Support of Managerial Decision Making
goals discussion goals achievement fill in the blanks multiple choice problems check list and key terms
Following is a "checklist" of selected key concepts that are likely to be included on an exam. Review and check-off each noted item to be certain that important concepts have not been overlooked in your study.
Understand absorption (full) costing logic, and know that it is required by GAAP.
Understand variable costing logic, and know how it is beneficial in the management decision process.
Be able to prepare an absorption costing income statement.
Be able to prepare a variable costing income statement.
Be able to demonstrate how inventory fluctuations cause income to differ under absorption vs. variable costing.
Define a business segment and identify issues related to measuring segment income.
Be able to prepare contribution income statements for business segments.
Thoroughly understand the concepts of controllable contribution margin, segment margin, and nontraceable costs.
Know the basic content of externally reported segment data.
Be able to distinguish between direct and step methods of allocating service department costs.
Understand how the same data can be viewed from the perspective of line item vs. object of expenditure, and why management might find such alternative displays helpful.
Know about business dashboards and their importance to contemporary managers who use them.
KEY TERMS AND DEFINITIONS (with links to discussion in text)
| absorption costing | Also known as full costing -- a costing method where inventory absorbs direct costs and variable and fixed factory overhead |
| contribution income statement | An internal report that identifies each segment's controllable elements; the contribution margin, controllable fixed costs, uncontrollable fixed costs, and segment margin |
| dashboard | Customized business software that delivers key real time business data in an easily monitored layout |
| direct method/allocating service cost | An allocation process whereby service department costs are assigned directly to productive departments (compare to step method) |
| residual income | An internal assessment technique that adjusts income for a presumed cost of capital (or other threshold rate of return); operating income - (operating assets X cost of capital) |
| segment | A business unit for which separate financial information is evaluated by an operating decision maker who allocates resources and judges performance of the unit |
| step method/allocating service cost | An allocation process whereby some service department costs may be assigned to other service departments as part of a sequential methodology |
| variable costing | A costing method where inventory absorbs direct costs and variable factory overhead; the income statement identifies the contribution margin |