Explain briefly how the contribution margin differs from the segment margin.

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First, we must start from the definition of contribution margin. Contribution margin is equal to difference between total sales and total variable expenses. It is useful when fixed costs are not changing.

But, when we look segment margin, situation in different. Segment margins the margin we get after the segment covers all its existing costs. The amount of the segment margin is obtained when we subtract the traceable fixed costs from the contribution margin.

It is useful for planning the profitability of individual segments.

Segment Margin = Segment Contribution Margin - Fixed Costs traced to the Segment