In keep-or-drop decisions, both the segment's contribution margin and its segment margin are useful in evaluating the performance of the segment.

Question

Quizplus · Accepted Answer

Both the contribution margin and segment margin provide important information in determining whether a segment should be kept or dropped. The contribution margin shows the profitability of each unit or dollar of sales, while the segment margin accounts for all direct and indirect expenses associated with the segment. Consideration of both measures helps ensure a well-informed decision.

In Keep-Or-Drop Decisions, Both the Segment's Contribution Margin and Its