Caution should be taken when interpreting a segment margin income statement because:
A)revenues may be based on transfer prices.
B)the interactive effects among responsibility centers are generally not clearly captured.
C)expenses may be a result of subjective allocation of jointly incurred costs.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

All of the given options are potential issues when interpreting a segment margin income statement. Revenues may be based on transfer prices, which can be arbitrary and not reflective of market conditions. The interactive effects among responsibility centers, such as how one center's performance affects another, may not be clearly captured in the segment margin income statement. Additionally, expenses may be allocated subjectively, which can result in distorted profit figures for various segments. Therefore, caution should be taken when interpreting segment margin income statements.

Caution Should Be Taken When Interpreting a Segment Margin Income