All other things being equal,which of the following is a consequence of an increase in a division's traceable fixed expenses?
A) The division's contribution margin ratio will decrease.
B) The division's segment margin ratio will remain the same.
C) The division's segment margin will decrease.
D) The overall company operating income will remain the same.

Question

Quizplus · Accepted Answer

An increase in a division's traceable fixed expenses will decrease the division's segment margin. This is because these fixed expenses cannot be allocated to other segments, and thus, their impact is felt completely by the division. The contribution margin ratio and segment margin ratio may remain the same or decrease depending on the change in revenue or variable costs, but the segment margin will definitely decrease. The overall company operating income may also be affected depending on the size and profitability of the division.

All Other Things Being Equal,which of the Following Is a Consequence