In Jeonghan Company’s segment report, total 2026 revenues are ₱15,000,000 and segment A contributes 40%; traceable costs are ₱3,500,000 out of total traceable costs of ₱10,000,000; common costs of ₱3,000,000 are allocated based on each segment’s profit before common costs. How much operating profit should be reported for segment A?

What the question is asking

You need segment A’s operating profit after common costs, where the common cost is allocated using each segment’s profit before common costs as the allocation base.

Step 1: Compute segment A revenue

Segment A contributes $40\%$ of total revenue:

$$\text{Revenue}_A = ₱15{,}000{,}000\times 0.40 = ₱6{,}000{,}000$$

Step 2: Find profit before common costs

Profit before common costs uses only traceable (direct) costs.

For segment A:

$$\text{Profit before common}_A = ₱6{,}000{,}000 - ₱3{,}500{,}000 = ₱2{,}500{,}000$$

For all segments combined:

$$\text{Total profit before common} = ₱15{,}000{,}000 - ₱10{,}000{,}000 = ₱5{,}000{,}000$$

Step 3: Allocate common costs based on profit before common costs

Allocation ratio for segment A:

$$\text{Share}_A = \frac{₱2{,}500{,}000}{₱5{,}000{,}000} = 0.5$$

Allocated common cost to segment A:

$$\text{Common cost}_A = ₱3{,}000{,}000\times 0.5 = ₱1{,}500{,}000$$

Step 4: Compute segment A operating profit

$$\text{Operating profit}_A = ₱2{,}500{,}000 - ₱1{,}500{,}000 = ₱1{,}000{,}000$$

So, segment A should report ₱1,000,000 operating profit.