Question

Ellie’s Edibles, Inc. is segmented into three divisions, and $42,000 of the fixed expenses relate to the corporate (common) expenses and had been allocated equally between the three divisions.

		Total Company	Division X	Division Y	Division Z
Sales		$200,000	$80,000	$50,000	$70,000
Variable Expenses		120,000	52,000	30,000	38,000
Contribution Margin		$80,000	$28,000	$20,000	$32,000
Fixed Expenses		60,000	20,000	22,000	18,000
Net income (loss)		20,000	$8,000	-$2,000.00	$14,000

A. Calculate the Contribution Margin Ratio for each segment and for the Total Company.

B. Revise the income statement presented above into a segmented income statement.

Answer 1

• Working #1

	Division X	Division Y	Division Z
Fixed Expenses	$20,000	$22,000	$18,000
Less: Common Fixed Expenses [42000 / 3]	$14,000	$14,000	$14,000
Traceable Fixed Expense	$6,000	$8,000	$4,000

• Requirement A

Working		Division X	Division Y	Division Z	Total Company
A	Contribution Margin	$28,000	$20,000	$32,000	$80,000
B	Sales	$80,000	$50,000	$70,000	$200,000
C = A/B	Contribution margin ratio	35.00%	40.00%	45.71%	40.00%

• Requirement B

	Division X	Division Y	Division Z	Total Company
Sales	$80,000	$50,000	$70,000	$200,000
Variable Expenses	$52,000	$30,000	$38,000	$120,000
Contribution Margin	$28,000	$20,000	$32,000	$80,000
Traceable Fixed Expense	$6,000	$8,000	$4,000	$18,000
Segment Margin	$22,000	$12,000	$28,000	$62,000
Common Fixed Expense				$42,000
Net income (loss)				$20,000