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, and then subtracting common fixed costs.
E)None of the above.

Question

Quizplus · Accepted Answer

Segment margin is calculated by subtracting the fixed costs traceable to that product from its contribution margin. This gives a more accurate measure of the profitability of a specific product, as it takes into account the costs directly related to producing that product. Common fixed costs are not included in this calculation as they are not traceable to a specific product. Option A includes common fixed costs, and option B includes only variable costs. Option D includes common fixed costs and contribution margins from all products, which is not relevant to calculating the segment margin of a specific product. Therefore, option C is the correct choice.

Segment (Product) Margin Is Calculated By