Managerial Accounting
15th Edition
ISBN: 9780078025631
Author: Ray H Garrison, Eric Noreen, Peter C. Brewer Professor
Publisher: McGraw-Hill Education
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Question
Chapter AB, Problem 1Q
To determine
Absolute profitability:
The profitability that measures the impact of adding or leaving a particular business segment such a products, customers on the company’s overall profit earning capacity is known as absolute profitability.
The meaning of absolute profitability.
Expert Solution & Answer
Answer to Problem 1Q
Absolute profitability is used to measure the profit earning capacity of the business segments.
Explanation of Solution
The information needed to measure the absolute profitability is as under:
- The current profit earning capacity of the company.
- The details of the customers and the products of the business segment to be added or dropped.
- The pricing policy of the product.
- The pricing policy of the competitor’s product.
The list is not exhaustive and may include other factors like geographical conditions, type of market, etc as it differs from business to business.
Conclusion
The meaning of absolute profitability is thus explained.
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