Question

Shannon Company segments its income statement into its North and South Divisions. The company’s overall sales, contribution margin ratio, and net operating income are $540,000, 50%, and $43,200, respectively. The North Division’s contribution margin and contribution margin ratio are $157,500 and 75%, respectively. The South Division’s segment margin is $44,000. The company has $81,000 of common fixed expenses that cannot be traced to either division.

Answer 1

			Divisions
	Total Company		North		South
	Amount	%	Amount	%	Amount	%
Sales	$540000	100%	$210000	100%	$330000	100%
Variable expenses	$270000	50%	$52500	25%	$217500	65.91%
Contribution margin	$270000	50%	$157500	75%	$112500	34.09%
Traceable fixed expense	$145800	27%	$77300	36.81	$68500	20.76%
Segment margin	$124200	23%	$80200	38.19	$44000	13.33
Common fixed expense	$81000	15%	$0	0	$0	0
Net operating income	$43200	8%	$0	0	$0	0

Working Note;

1. Contribution margin of the company ($540000 * 0.50) = $270000

2. Variable expenses of the company ($540000 – $270000) = $270000

3. Segment margin of the company ($81000 + $43200) = $124200

4. Traceable fixed expense ($270000 – $124200) = $145800

5. Sales of north division ($157500 * 100 / 75) = $210000

6. Variable expense of north division ($210000 – $157500) = $52500

7. Segment margin of north division ($124200 – $44000) = $80200

8. Traceable fixed expense of north division ($157500 – $80200) = $77300

9. Traceable fixed expense of south division ($145800 – $77300) = $68500

10. Sales of south division ($540000 – $210000) = $330000

11. Variable expense of south division ($270000 – $52500) = $217500

12. Contribution margin of south division ($330000 – $217500) = $112500