Question

Neelon Corporation has two divisions: Southern Division and Northern Division. The following data are for the most recent operating period:

Total Company Southern Division Northern Division

Sales $ 408,800 $ 227,700 $ 181,100

Variable expenses $ 144,478 $ 86,526 $ 57,952

Traceable fixed expenses $ 206,400 $ 84,300 $ 122,100

Common fixed expense $ 81,760 $ 45,540 $ 36,220

The common fixed expenses have been allocated to the divisions on the basis of sales.

The Northern Division’s break-even sales is closest to:

Multiple Choice

$186,714

$267,839

$179,559

$209,419

Answer 1

to calculate Northern division break even sales for this case, we need to calculate Division's contribution margin ratio.

Step 1

Northern division contribution margin =	Northern division sales - northern division variable expenses
Northern division contribution margin =	$181,100 - $57,952
Northern division contribution margin =	$                                                                                                              123,148

Step 2

Northern division Contribution margin ratio =	Northern division contribution margin / northern division sales
Northern division Contribution margin ratio =	$123,148 / $181,100
Northern division Contribution margin ratio =	0.68

Step 3

Northern division break even sales =	Treaceble fixed expenses for northern division / northern division CM ratio
Northern division break even sales =	$122,100 / 0.68
Northern division break even sales =	$179,559