Knowledge Check 01 Max, Inc, has two divisions, South Division and North Divisio

Question

Knowledge Check 01 Max, Inc, has two divisions, South Division and North Division. South Division's sales, contribution margin ratio, and traceable fixed expenses are $500,000, 60%, and $100,000 respectively, what is the segment margin for the South Division? $100,000 O $200,000 $300,000 $400,000 Knowledge Check 02 Bovine Corporation has two divisions: televisions and mobile phones. The mobile phone division has a contribution margin of $600,000. The company's common fixed costs and total traceable fixed costs are $100,000 and $500,000 respectively. What is the segment margin of the mobile phone division, assuming the traceable fixed costs of the television division are $300,000? $100,000 $200,000 $300,000 $400,000

Explanation / Answer

1) Sales-$500,000

Contribution margin ratio-60%

South division contribution-$500,000*60%

=$300,000

Variable cost=$500,000-$300,000

=$200,000

Segment margin=segment revenue-variable cost-avoidable fixed cost

=$500,000-$200,000-$100,000

=$200,000

2) Contribution margin-$6,00,000

Segment margin=segment revenue-variable cost- avoidable fixed cost

or contribution -avoidable fixed cost

$600,000-(total taceable cost-television traceable cost)

$600,000-($500,000-$300,000)

$600,000-$200,000

$400,000

NOTES;WE HAVE TAKEN ONLY RELEVANT COST FOR CALCULATING SEGMENT MARGIN AND HAVE IGNORED ALL THE IRRELEVANT COST.UNAVOIDABLE FIXED COST AND COMMON COST ARE IRRELEVANT FOR DECISIONS REGARDING A SEGMENT OR A PRODUCT LINE.

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