21. Hayworth Corporation has just segmented last year\'s income statement into i

Question

21. Hayworth Corporation has just segmented last year's income statement into its ten product lines. The chief executive officer (CEO) is curious as to what effect dropping one of the product lines at the beginning of last year would have had on overall company profit. What is the best number for the CEO 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

Explanation / Answer

The decision to keep or drop an existing segment is determined through relavent cost analysis and the impact the decision will have on net operating income. Only those costs that are avoidable are relavent to consider in the decision analysis.

The answer is C

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