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Segmented Income - Explained

What is Segmented Income?

Written by Jason Gordon

Updated at April 7th, 2022

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Table of Contents

What 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.

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  • Comparing Segmented Income
  • Using ROI to Evaluate Performance
  • Using Residual Income to Evaluate Performance
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  • Transfer Pricing
segmented income

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