A manager is attempting to determine whether a segment of the business should be eliminated.The focus of attention for this decision should be on
A)the net income shown on the segment's income statement.
B)sales minus total expenses of the segment.
C)sales minus total direct expenses of the segment.
D)sales minus total variable expenses and avoidable fixed expenses of the segment.

Question

Quizplus · Accepted Answer

The most relevant information for the manager's decision is the profitability of the segment, which can be measured by determining the contribution margin. This is calculated as sales minus total variable expenses, which represents the amount that is available to cover the segment's fixed expenses and contribute to the overall profitability of the business. Avoidable fixed expenses are also considered in this calculation, as they are expenses that can be eliminated if the segment is discontinued. Therefore, the best choice is option D, which takes into account both variable and fixed expenses that are relevant to the decision.

A Manager Is Attempting to Determine Whether a Segment of the Business