Valley Inc. has three divisions, Almond, Grover and Oak. Following is the income

Question

Valley Inc. has three divisions, Almond, Grover and Oak. Following is the income statement for the previous year:   

Of the fixed costs, $318,000 is for corporate costs and is allocated equally to the three divisions.

a. How much does Grover Division have in direct fixed costs?



b. What is Grover Division’s segment margin?



c. What would Valley’s profit margin be if Grover Division were dropped?

Almond Grover Oak Total Sales $ 499,000 $ 273,500 $ 227,000 $ 999,500 Variable Costs 182,000 124,200 100,800 407,000 Contribution Margin 317,000 149,300 126,200 592,500 Fixed Costs 273,000 169,250 119,750 562,000 Profit Margin $ 44,000 $ (19,950 ) $ 6,450 $ 30,500

Explanation / Answer

General Fixed cost added to Grover = 318000 / 3 = 106000

Grover division fixed cost = 169250 - 106000 = 63250

Grover division segment margin = (-19950 + 106000) / 273500 = 31.46%

Valleys Profit if Grover is dropped = Almond Profit + Oak Profit - Common fixed expense of Grover

= 44000 + 6450 - 106000 = - 55550

Margin = -55550 / 726000 = -7.65%

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