Segmented Income - Explained
What is Segmented Income?
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Table of ContentsWhat is Segmented Income?
What is Segmented Income?
Segmented income is segment revenues minus segment expenses.
It is often used to assess and compare the performance of company segments considered Investment Centers of the company. .
The starting point for evaluating investment centers is typically with reviewing segmented income for each investment center (or division).
Top management is interested in the level of profit that each division generates, and segmented income gives them this information.
Organizations can define income or profit many different ways when evaluating performance. For example, some might only look at operating income, others might exclude allocated overhead from operating income. Another alternative is to focus on gross margin.
The point is that managerial accountants must be flexible in designing reports that best meet the needs of managers.
To account for differences in size of segments, companies might compare profit margin ratios for each division (net income ÷ sales).
Because each division manager has control over revenues, costs, and investments in assets, each division is considered an investment center.
One issue with using net income as the sole measure of performance ignores the assets used to produce net income.
Fortunately, there are other metrics to determine how well each division performed relative to the investments made.
- Job Costing vs Process Costing
- Assign Overhead Costs to Products
- Plantwide Cost Allocation
- Department Cost Allocation
- Activity-Based Costing
- Weighted-Average Cost of Products
- Production Cost Report
- Fixed, Variable, and Mixed Cost Estimations
- Contribution Margin Income Statement
- Cost-Volume-Profit Analysis
- Margin of Safety
- Contribution Margin per Unit of Constraint
- Absorption Costing vs Variable Costing
- Differential Analysis and Decisions
- Cost Decisions for Joint Products
- Capital Budgeting
- Life Cycle Costing
- The Master Budget
- Activity-Based Budgeting
- Standard Costs
- Imputed Value
- Variance Analysis for Product Costs
- Absorption Pricing
- Price Variance
- Absorption Variance
- Responsibility Centers
- Comparing Segmented Income
- Using ROI to Evaluate Performance
- Using Residual Income to Evaluate Performance
- Use Economic Value Added to Evaluate Performance
- Transfer Pricing