Many companies view performance margin as a more useful tool than responsibility margin for evaluating segment managers.This is because:
A)Managers have no control over traceable fixed costs.
B)Performance margin is not affected by the size of the department.
C)Performance margin indicates the change in operating income that would result from closing the department.
D)Performance margin includes only those revenue and costs under the manager's direct control.

Question

Quizplus · Accepted Answer

Performance margin includes only revenue and costs that are directly under the control of the manager, making it a better tool for evaluating their performance. Responsibility margin includes both traceable and common fixed costs, which are not directly under the control of the manager. Therefore, option A is incorrect. The size of the department may still affect performance margin, so option B is also incorrect. While performance margin does indicate the change in operating income if the department were closed, this is not necessarily why it is viewed as a more useful tool. Therefore, option C is also incorrect.

Many Companies View Performance Margin as a More Useful Tool