In practice, many organizations measure the relative profitability of their segments by dividing the segments€™ margins by their revenues. The segment margin for this purpose is the segment€™s revenue less its fully allocated costs€”including allocations of fixed common costs. For example, a hospital might compute the relative profitability of its major segments as follows:
Appendix B

The hospital€™s net operating income for this period was $1,030,000.
Required:
1. Evaluate the use of the margin, as defined above, in the numerator of the profitability measure.
2. Evaluate the use of revenue in the denominator of the profitabilitymeasure.

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Mermorial Hospital Profitability Report in thousands of dollars) Emergency Room Surgery Acute Care Total Revenue Fully allocated cost Margin Profitability (Margin Revenue).. S8,650 $14,870 $12,120 $35,640 11.760 34,610 S 290 380 360 $1,030 2.9% 8,360 14,490 3.4% 2.6% 3.0%