Segment

Definition

A segment is a distinct part of a business for which financial information is separately tracked and analyzed. Segments can be product lines, departments, or geographical regions.

5 Must Know Facts For Your Next Test

1. Segments help in identifying the profitability and performance of different parts of a business.
2. Decisions to keep or discontinue segments are based on relevant costs and revenues associated with the segment.
3. Fixed costs that cannot be eliminated if a segment is discontinued are considered unavoidable fixed costs.
4. Contribution margin is an important metric when evaluating the performance of a segment.
5. Opportunity cost should be considered when deciding whether to discontinue a profitable segment.

Review Questions

• What factors are considered when deciding to keep or discontinue a segment?
• How do you calculate the contribution margin for a segment?
• What role does opportunity cost play in short-term decision making for segments?

Related terms

Contribution Margin:

The difference between sales revenue and variable costs.

Relevant Costs:

Costs that will be affected by a decision.

Unavoidable Fixed Costs: Fixed costs that remain even if a segment is discontinued.