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Analyzing Segment Margin

Suppose that a ceramics company has three divisions: household ceramics, ceramic tiles, and ceramic conductors. It may be that each division uses a different physical plant, employs different operating and sales staff, has a different overhead structure, and so on.

If so, the divisions' fixed costs are likely to differ. An analysis of segment margin—so called because each division is termed a segment—is primarily an extension of contribution margin analysis for products to segments. You can determine the segment margin by deducting the direct fixed costs from the segment's contribution margin, as shown in Figure 19.14:


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