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Segments
A segment is a division of a company that has its own income, costs and profits. Segments can be specific product lines, stores, territories, etc.
Costs
Traceable Fixed Costs
Fixed costs that can be traced back to particular segments and would be eliminated if that segment is eliminated. Sometimes called the direct costs.
Common Fixed Costs
Fixed costs that are incurred at higher level than the individual segments and would not be eliminated if a segment is eliminated. Sometimes called allocated costs.
Evaluating Segments
When evaluating segments' income, it's important to consider only traceable costs related to that segment because these are the costs that the segment can control. Common costs are incurred regardless of the segments operations.
Example
Consider this company with 2 segments and the effects of eliminating Segment A.
