People who support the use of the contribution approach to segmental profitability feel that the net profit approach is wrong because it allocates costs:
A)arbitrarily
B)on a predetermined basis
C)equally among the products or customers
D)all of the above

Question

Quizplus · Accepted Answer

The contribution approach to segmental profitability advocates for the allocation of costs based on their cause-and-effect relationship with the different products or customers. This contrasts with the net profit approach, which allocates costs arbitrarily or on a predetermined basis, thereby distorting the true profitability of each segment. By using the contribution approach, companies can gain a better understanding of each segment's profitability and make more informed decisions regarding resource allocation and pricing strategies.

People Who Support the Use of the Contribution Approach to Segmental