Question

1.) Maurice Corporation has two major business segments; Philippe and Chip. In April, the Philippe business segment had sales revenues of $500,000, variable expenses of $280,000, and traceable fixed expenses of $80,000. During the same month, the Chip business segment had sales revenues of $970,000, variable expenses of $514,000, and traceable fixed expenses of $184,000. The common fixed expenses totaled $280,000 and were allocated as follows: $112,000 to the Philippe business segment and $168,000 to the Chip business segment. A properly constructed segmented income statement in a contribution format would show that the segment margin of the Philippe business segment is:

a.) $108,000
b.) $140,000
c.) 280,000
d.) $28,000

2.) Which of the following statements best describes activity based costing:

a.)activity based costing can only be used by very large, international companies.
b.) activity based costing must adhere to generally accepted accounting principles
c.) activity based costing focuses on assigning overhead costs
d.) activity based costing cannot be used in businesses that provide services to its customers

Answer 1

Answer:

1.Calculation of Segment margin of Philippe

Sales Revenue                                                 $500000

Less: Variable Expenses                                 ($280000)

Contribution Margin                                       $220000

Less: Traceable fixed Expenses                      ($80000)

Segment margin                                            $140000

Note: Untraceable Fixed expenses are excluded while calculating segment margin.

Hence, The right option is “b” $140000

2. The right option is “c”.

Activity based costing focuses on assigning overhead costs.

Reason: In activity based costing, indirect costs including overhead are assigned to activities; then activity costs are assigned to products or other cost objects