A company has two divisions, each selling several products. If segment reports are prepared for each...
A company has two divisions, each selling several products. If segment reports are prepared for each product, the division managers' salaries should be considered as traceable fixed costs of the products.
True or False?
All other things the same, if a division's traceable fixed expenses increase then the division's segment margin will decrease.
True or False?
Homework Answers
Division manager's salary cannot be divided among different products as the division manager's salary is generally fixed and does not vary with time or other factors of each product. Division manager's salary is therefore considered as common fixed costs and is not allocated to product. The salary is deducted from total segment margin as common costs.
Thus, the statement is false.
Segment margin is calculated as sales of each division less direct costs related to each division. Direct costs include variable costs plus fixed costs which are traceable to the division. If the traceable fixed costs increases then segment margin would decrease.
Thus, the statement is true.
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