A Company\'s income statement for June is given below: Total Division F Division

Question

A Company's income statement for June is given below:

                                  Total               Division F                Division L
Sales                          $490,000          $308,000                  $182,000
Variable expenses         235,480            166,320                      69,160
Contribution margin      254,520            141,680                    112,840
Traceable fixed exp     135,600               61,400                      74,200
Segment margin          118,920              $80,280                    $38,640
Common fixed exp         40,400
Net operating income    $78,520

During June, the sales clerks in Division F received salaries totaling $39,800. Assume that during July the salaries of these sales clerks are discontinued and instead they are paid a commission of 19% of sales. If sales in Division F increase by $43,000 as a result of this change, the July segment margin for Division F should be:


$49,870
or
$84,870
or
$124,470
or
$73,170

Explanation / Answer

Division F's variable cost % is 166320/308000= 54%, so if sales clerks are now paid 19% of sales that will go up to 73%. Sales go up 43,000 so they are $351,000 and since variable costs are now 73% contribution margin will be $351,000*.27=94,770. Fixed expenses have gone down 39,800 so they are now 61,400-39,800= 21,600. So segment margin is now 94,770-21,600= $73,170.

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