Chapter B, Problem B.1Q

What is meant by absolute profitability?

To determine

Concept introduction:

Managerial decisions include the decision of discontinuing a segment or product of the company. To make such decisions, differential analysis is used to find the incremental gain or loss from the discontinuation of the segment or product.

To indicate: the meaning of absolute profitability. 

Explanation of Solution

Absolute profitability is the technique to measure the net incremental gain or loss from the discontinuation of the segment or product. Managerial decisions include the decision of discontinuing a segment or product of the company.

Under this technique, all the relevant costs and revenues are considered and net incremental or absolute profits (loss) are calculated from the discontinuation of the segment or product.