Segment (product) margin is calculated by:
A) Subtracting common fixed costs from its contribution margin.
B) Subtracting variable costs traceable to that product from contribution margin.
C) Subtracting fixed costs traceable to that product from its contribution margin.
D) Summing all contribution margins, then subtracting common fixed costs.
E) None of the above.

Question

Quizplus · Accepted Answer

Segment (product) margin is calculated by subtracting fixed costs traceable to that product from its contribution margin. This approach allows for a better understanding of the profitability of individual products or product lines, as it takes into account the costs specific to producing and selling that product. Option A is incorrect as it subtracts common fixed costs, which are not specific to the product. Option B is incorrect, as it only considers variable costs, whereas segment margin must also account for fixed costs. Option D sums all contribution margins and subtracts common fixed costs, which would give the total net profit, not the segment margin. Option E is incorrect as there is a correct answer.

Segment (Product) Margin Is Calculated By