Reading+Response+3+Sample+Answers

Reading+Response+3+Sample+Answers - How might a segmented...

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A202 Reading Response #3 Sample answers 1. Explain the difference between the gross margin and the contribution margin. The gross margin is the difference between revenue and product costs, while the contribution margin is the difference between revenue and variable costs. The gross margin is part of the GAAP income statement, used for external reporting, while the contribution margin is part of the contribution margin income statement, used for many internal decisions. The gross margin draws a distinction between the function of different costs (product vs. period), but does not distinguish between fixed and variable costs. The contribution margin draws a distinction between variable and fixed costs, but does not distinguish between different functions of costs. 2. Give examples of three possible segments for a firm such as National Car Rental.
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Unformatted text preview: How might a segmented contribution margin income statement be useful for National Car Rental? Segments are typically sub-areas of a business that generate revenues and expenses, and therefore a portion of the profits for the business. For National Car Rental, possible segments might be geographic: Northeastern rentals, Midwestern rentals, West Coast rentals, for example; or, possible segments could be type of car rented: SUVs, compacts, luxury sedans; or, possible segments could be customer type: Corporate customers, casual travelers, business people. A segmented contribution margin income statement might be useful for National for such decisions as whether to discontinue offering certain kinds of vehicles, whether to pursue a certain customer segment more heavily (if it is quite profitable), or whether to expand into a new area....
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This note was uploaded on 02/02/2010 for the course BUS-A 202 taught by Professor Keenan during the Spring '08 term at Indiana.

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