Question

XYZ segmented last year's income statement into its ten product lines. The CEO is curious as to what effect dropping one product line at the beginning of last year would have had on overall company profit. What is the best number to look at to determine the effect of this elimination on the net operating income of the company as a whole?

A) the product line's sales dollars.
B) the product line's contribution margin.
C) the product line's segment margin.
D) the product line's segment margin minus an allocated portion of common fixed expenses.

Answer 1

Option c: The product line's segment margin

Step-by-step explanation:

Net Operating Income

This is often regarded as the

adjusted Effective Gross Income (EGI) adjusted for annual operating expense and capital expenditures of a firm/organization

Net Operating Income Equation

(sales - variable expenses) - fixed expenses

Segment margin

The product line segment margin is usually said to be obtainable through the act of deduction of the traceable fixed costs of a segment from the segment's contribution margin. It shows or entails the margin at hand after a segment has covered all of its own costs. Itis the best gauge of the long-run profitability of a segment as it includes only those costs that are caused by the segment.

Segment margin formula

Contribution Margin - Traceable fixed costs