Question

If you were to delegate common fixed costs to segments (DO NOT DO THIS), it would ____ the value of the segment margin number. This is bc it would include ___ ___ that segments have no control over.

Answer 1

Including common fixed costs in segment margin calculations would distort the value by introducing expenses segments can't control, reducing the metric's effectiveness in measuring segment performance.

Step-by-step explanation:

If you were to delegate common fixed costs to segments, it would distort the value of the segment margin number because it would include expenses that segments have no control over.

In management accounting, segment margin is an important figure that represents the profit or loss generated by a particular part of a business after covering all costs directly associated with that segment, but before any common fixed costs that are shared across segments are allocated.

Including common fixed costs, which are not caused by any single segment and are often related to the central operations of a company, would reduce the utility of the segment margin as a measure of the segment's performance.