Hayworth Corporation has just segmented last year's income statement into its ten product lines. The chief executive officer (CEO) is curious as to what effect dropping one of the product lines at the beginning of last year would have had on overall company profit. What is the best number for the CEO to look at to determine the effect of this elimination on the net operating income of the company as a whole?
A) the product line's sales dollars
B) the product line's contribution margin
C) the product line's segment margin
D) the product line's segment margin minus an allocated portion of common fixed expenses

Question

Quizplus · Accepted Answer

The best number to look at is the product line's segment margin, as it reflects the direct contribution of the product line to the overall company profit after accounting for both variable and fixed costs that can be directly attributed to the product line. This provides a clear picture of the impact of the product line on the company's net operating income.

Hayworth Corporation Has Just Segmented Last Year's Income Statement into Its