Managerial Accounting
Managerial Accounting
6th Edition
ISBN: 9781259726972
Author: John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher: McGraw-Hill Education
Question
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Chapter 6, Problem 16E
To determine

(1)

To explain:

Whether the operating income is growing faster in the one segment than other segment of the company.

Operating Income:

It refers to the earnings of a company before interest and tax paid. It is calculated by subtracting cost of goods sold and operating expenses from sales.

Absorption Costing:

It refers to the method of product costing in which the price of the product is calculated considering all the fixed as well as the variable or direct costs. The valuation of closing inventory in this method is consists of both fixed and variable costs.

Variable Costing:

It refers to the method of product costing in which the price of the product is calculated considering only the variable or direct costs or the cost that happened to occurred due to the product only. It is also called as marginal costing as it takes marginal costs while calculating the product cost.

To determine

(2)

To explain:

Whether the difference in operating income growth is due to the use of different costing methods in the two segments.

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