Daytona Company operates three divisions, L, M, and Z. The following information

Question

 Daytona Company operates three divisions, L, M, and Z. The following information is available for the most recent month:  Daytona Company: Variable costs .............    $281,000 Common fixed costs .........    $ 92,000 Net income .................    $136,000  Division L: Traceable fixed costs ......    $ 28,000  Division M: Sales revenue ..............    $190,000 Contribution margin ........    $ 57,000 Segment margin .............    $ 46,000  Division Z: Variable costs .............    $ 92,000 Variable costs .............    40% of sales Segment margin .............    $106,000  Calculate the sales revenue reported by Division L during the most recent month.

Explanation / Answer

Answer is $117,000

Let’s calculate the sales revenue reported by Daytona Company on total level:

Net Income reported = $136,000

Common Fixed Cost = $92,000

Traceable Fixed cost (Div L) = $28,000

Total Fixed Cost = $92,000 + $28,000 = $120,000

(It should be noted that Traceable fixed cost are reported on segment level while common fixed cost is the fixed cost incurred for handling more than one segment. Total Fixed Cost is sum of both)

Contribution = Fixed Cost + Net Income

= $136,000 + $120,000 = $256,000

Sales – Variable cost = Contribution

Sales = Contribution + Variable cost

Sales by Company= $256,000 + $281,000 = $537,000

Revenue for Div M is already given, let’s calculate revenue for Division Z as well

Variable cost = $92,000

Variable cost = 40% of sales

Sales = $92,000 / 40% = $230,000

Total Sales by Company = Sales (Div L + Div M + Div Z)

537,000 = Sales (Div L) + 190,000+ 230,000

Sales (Div L) = 537,000 – 420,000 = $117,000

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