Respnsible for sales but not for the manufacturing costs of the sales
Responsible for controlling costs in a departmetn that generates little or no revenue
Responsible for both cost and revenues
Responsible for investments, costs, and revenues
The excess of sales revenue over variable costs, which contibutes toward fixed expenses and profits.
Controllable fixed costs
Costs that can be changed within a year.
Uncontrollable fixed costs
Costs that take more than one year to influence, or from nonnegotiable corporate allocation of headquarters expenses.
Traditional reporting Approach
Cost Organized by Function
Contribution reporting approach
Costs Organized by Behavior
The segment's contribution margin less all traceable fixed costs for the segment.
Traceable Fixed costs
Costs that would not exist were it not for the segment. Examples include administrative salaries for segment manager, building maintenance costs or insurance premiums that can be traced to the segment.
Fixed costs shared by two or more segments. These need to be allocated so that they are included in the financial results of the segment.
A method of cost allocation that determines the relative proportion of cost driver for each party that shares a common cost and allocates the costs by those percentages.
A method of cost allocation that allocates costs by ranking the parties by a primary user and incremental users, or those users that add an additional cost due to the fact that there is now more than one user of the cost.
Used todescribe pricing that represents an impartial or fair market price and does not give speacial concessions for internal customers.
Market Price Model
Sets the price for a good or service at going market prices - atrue arm's length model.
Negotiated price model
Sets the transfer price through negotiation between the buyer and the seller.
Variable cost Model
Sets transfer prices at the unt's cariable cost, or the actual cost to produce the good or service less all fixed costs. This method will lower the selling unit's profits and increase the buying unit's profits due to the low price.
Full cost (absorption) model
Starts wit the seller's variable cost for the item and then allocates fixed costs to the price.