Question

Haribo  has multiple business segments. Which is true from below? Multiple Choice If a business segment is...

Haribo  has multiple business segments. Which is true from below?

Multiple Choice

  • If a business segment is entirely eliminated, a true common fixed cost will decrease.

  • Fixed costs traceable to a business segment can become common costs if the business segment is divided into smaller segments.

  • Both traceable and common fixed costs should be charged to business segments.

  • Traceable fixed costs are incurred to support more than one business segment and thus should not be charged to any particular segment.

  • The company's segmented income statement is usually prepared in the traditional format.

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Answer #1

Answer is The Company’s segmented income statement is usually presented in the traditional format

A Company usually prepares income statement is traditional format which does not distinguish between variable cost and fixed cost. Hence for evaluation of whether a segment should be continued or not the segmented income statement should be prepared in variable costing format for decision making purpose. Variable costing income statement separates variable cost and fixed cost. A segment should be continued if its contribution is higher than avoidable fixed costs.

Common cost is fixed cost and does not decrease. Traceable fixed costs are charged to business segments and are avoidable costs.

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