In practice, many organizations measure the relative profitability of their segments by dividing the segments margins by

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In practice, many organizations measure the relative profitability of their segments by dividing the segments€™ margins by their revenues. The segment margin for this purpose is the segment€™s revenue less its fully allocated costs€”including allocations of fixed common costs. For example, a hospital might compute the relative profitability of its major segments as follows:
Appendix B

In practice, many organizations measure the relative profitabili

The hospital€™s net operating income for this period was $1,030,000.
Required:
1. Evaluate the use of the margin, as defined above, in the numerator of the profitability measure.
2. Evaluate the use of revenue in the denominator of the profitabilitymeasure.

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Managerial Accounting

ISBN: 9780073526706

12th Edition

Authors: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer

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