The suburban marketing segment should be measured by what it controls and by fixed costs traceable to it, even if not controlled by it. This is called the segment margin, and the expenses included in it are the segment's variable costs, fixed costs it controls and fixed costs that are controllable by corporate management. Segment manager performance includes only costs controllable by the segment manager. Segment manager performance would not include fixed costs controllable by the corporate management. However, in this question we are measuring the segment , not the segment manager, because the question asks for the best measure of the economic performance of the segment. The segment margin includes the following items: Net sales $950,000 Fixed costs controllable by suburban marketing mgr. 150,000 Fixed costs controllable by corporate management 250,000 Total variable costs 430,000 Segment margin $120,000
This answer does not include the fixed costs controllable by the company's management. This needs to be included in segment performance, but it would not be included in segment manager performance.
This answer is the contribution margin of sales minus variable costs and fails to take into account the fixed costs that are controllable by the segment.
This answer incorrectly includes the allocated fixed costs. See the correct answer for a complete explanation.
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The best measure of the economic performance of the suburban marketing segment is:
