Question

Toy Trucks Co. has provided the following relating to the most recent month (August 31, 2016) of operations, for their two main products, toy firetrucks and toy dump trucks. The company sold 20,000 firetrucks and 10,000 dump trucks. Firetrucks sell for $25.00 and dump trucks sell for $20.00. Other data relating to the product lines is as follows:

	Fire Trucks	Dump Trucks
Variable Expenses as a % of Sales	60%	50%
Traceable Fixed Costs	$60,000	$50,000

In addition to the above costs, the company spent $5,000 on an advertising campaign which advertised both product lines. The company also has corporate fixed costs of $10,000 per month. These corporate fixed costs would be incurred regardless of the product lines sold.

1. What is the CM ratio of the fire trucks product line?

2. What is the total contribution margin (in dollars) of the dump truck product line?

3. What is the segment margin (in dollars) for the fire trucks product line?

4. What is the overall operating income (loss) for the company?

Answer 1

1. CM Ratio => 100% - Variable Expense Ratio ie.,

• Fire Trucks: 100%-60% = 40%

2.Total Contribution Margin of Dump Trucks:

Sales ($ 20*100,000 units)	$ 200,000
Less: Variable cost @ 50%	$ 100,000
So total Contribution in dollars	$ 100,000

3.

Computation of segment margin of fire trucks

	Amount ($)
Sales (20,000*25)	500,000
Less: Variable Expenses (60%)	300,000
Contribution	200, 000
Less: Fixed Costs of the segment (traceable)	60,000
Segment Margin	140,000

4.

Computation of Overall Profit of the company

	Fire Trucks($)	Dump Trucks ($)	Total ($)
Sales	500,000	200,000	700,000
Less: Variable Expenses	300,000	100,000	400,000
Contribution	200, 000	100,000	300,000
Less: Fixed Costs of the segment (traceable)	60,000	50,000	110,000
Segment Margin	140,000	50,000	190,000
Non-traceable Fixed Costs:
Advertising			5,000
Other fixed costs			10,000
Operating Margin			175,000