The following information was taken from the segmented income statement of Dalto

Question

The following information was taken from the segmented income statement of Dalton, Inc.: Dalton Inc St. Louis Division Chicago Division Peoria Division Revenues $760,000 $200,000 $235,000 $325,000 Variable operating expenses 410,000 110,000 120,000 180,000 Controllable fixed expenses 210,000 65,000 75,000 70,000 Noncontrollable and traceable fixed expenses 60,000 15,000 20,000 25,000 In addition, Dalton incurred common fixed costs of $18,000. Chicago's segment profit margin is: $14,000. $18,000. $20,000. $40,000. $115,000. Assuming use of a responsibility accounting system, which of the following profit measures should be used to evaluate the performance of the St. Louis Division Manager? $4,000. $8,000. $10,000. $25,000. $90,000. Assume that the St. Louis Division increases its promotion expense, a controllable fixed cost, by $10,000. As a result, revenues increase by $50,000. If variable expenses are tied directly to revenues, the new St. Louis controllable profit margin becomes: $10,000. $25,000. $35,000. $37,500 $75,000

Explanation / Answer

4. Chicago's segment profit margin = 235000 - (120000+75000+20000)

= $ 20000

5.Profit measures for evaluation of St Louis division manager = 200000 - (110000+65000)

= $ 25000

6. Profit Margin for St Louis =

Revenues = 200000 +50000= 250000

Variable operating expenses = (110000/200000) *250000 = 137500

Controllable fixed expenses = 65000+10000 = 75000

Controllabe Profit Margin = 250000 - (137500+75000)

   =$37500

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