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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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In a segmented income statement, which of the following statements is true?

  1. a. Segment margin is greater than contribution margin.
  2. b. Common fixed expenses must be allocated to each segment.
  3. c. Contribution margin is equal to sales less all variable and direct fixed expenses of a segment.
  4. d. Segment margin is equal to contribution margin less direct and common fixed expenses.
  5. e. Segment margin is equal to contribution margin less direct fixed expenses.

To determine

Identify the correct statement regarding segmented income statement.

Explanation

Segmented Income Statement:

Variable costing is used in the preparation of a segmented income statement. In this income statement, the variable expenses are recorded separately from the fixed expenses which are further divided into direct fixed expenses and common expenses.

e.

The amount of segment margin can be determined by deducting the amount of direct fixed expenses from the contribution margin. Therefore, this option is correct.

a.

Under the segmented income statement, segment margin cannot exceed the amount of contribution margin. Therefore, this option is incorrect.

b.

Common fixed expenses are not allocated to each segment; rather direct fixed expenses are allocated...

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