ECONOMICS

Detailed explanation-1: -Common fixed costs should not be charged to the individual segments when preparing a segmented income statement. If a cost must be arbitrarily allocated in order to be assigned to a particular segment, then that cost should not be considered a common cost.

Detailed explanation-2: -In segmented income statements, fixed expenses are broken down into two categories: direct fixed expenses and common fixed expenses. This additional subdivision highlights controllable versus noncontrollable costs and enhances the manager’s ability to evaluate each segment’s contribution to overall firm performance.

Detailed explanation-3: -Traceable fixed costs arise because of the existence of a particular segment and would disappear over time if the segment itself disappeared. The salary of Fritos product manager at PepsiCo is a traceable fixed cost of the Fritos business segment of PepsiCo.

Detailed explanation-4: -A segmented income statement provides additional detail, breaking down revenues and expenses by business unit, such as product line, location, department, salesperson, or territory. This breakdown helps management identify underperforming segments and develop strategies for boosting profits.