Segmented

Reporting and
Performance
Evaluation
Managerial Accounting
Purpose of Segmented Reporting
• Business segment reporting breaks out a company's
financial data by company divisions, subsidiaries, or
other segments. In an annual report, the purpose of
business segment reporting is to provide an
accurate picture of a public company's performance
to its shareholders.
• For upper management, business segment reporting
is used to evaluate each segment's income,
expenses, assets, liabilities, and so on to assess
profitability and riskiness.
SEGMENT DECISIONS
• The basic decision question is: Is the firm more profitable with
or without the segment?
 Examples of this decision include:

• 1. Opening or closing a branch of retail store.

• 2. Adding or eliminating a product in a prodcuct line or adding or
eliminating an entire product line
• 3. Adding or eliminating a specialized service in a hospital
• 4. Opening or closing a claims office of an auto insurance firm.

In each of these examples, the question of whether the firm is better off with or
without the particular segment hinges on the segment’s contribution to the
profits of the firm as a whole. “In short, the decision must look at the
strategic value of the segment to generate profits”
Comparative Departmental Profit
Measurements
• The net Income approach shows Department C to be
losing money. The temptation to evaluate a segment’s
performance by allocating all costs to the segments is
appealing from a completeness perspective. But
segment net income sends misleading signals. Now, by
reorganizing the data into a contribution margin format,
it can be seen that the firm would be worse off by
P20,000.00 (the lost contribution margin of Department
C), if department C were eliminated. None of the
indirect costs currently allocated to Department C would
disappear. This assumes that all Department C
revenues, variable cost and direct fixed costs are
avoidable.
END OF THE REPORT