CHAPTER 5-ACCOUNTING SYSTEMS O Previous Page 11 of 12 H Nexto In applying segmen
ID: 2337087 • Letter: C
Question
CHAPTER 5-ACCOUNTING SYSTEMS O Previous Page 11 of 12 H Nexto In applying segment analysis to a business with declining total revenue from one year to the next, Oa. a company will learn very little because segment analysis should not be done for companies with declining revenues. b. a company will learn verylttle because segment analysis cannot be done to compare one year to the next. c. a company will not be able to determine if revenue growth in one segment d. a company may is sufficient to offset revenue decline in another segment. discover that revenue growth in one segment may not be sufficient to offset revenue decline in another segment.Explanation / Answer
In applying segment analysis to a business with declining total revenue from one year to the next,
d.) a company may discover that revenue growth in one segment may not be sufficient to offset revenue decline in another segment.
Reason:
This is because, by segmenting various divisions of the company only we would be able to understand which segment is giving us more profit and which one is less profitable. So, a company may be able to discover that it may happen that a revenue growth in one segment may not be sufficient to offset revenue decline in another segment. In that case, a company may be required to shut down its less profitable segment to continue earning profit from its profitable divisions.