Question

Max, Inc, has two divisions, South Division and North Division. South Division's sales, contribution margin ratio, and traceable fixed expenses are $500,000, 60%, and $100,000 respectively, what is the segment margin for the South Division?

a. $100,000
b. $200,000
c. $300,000
d. $400,000

Answer 1

Answer:

b. $200,000

Explanation:

Given that

Sales = $500,000

Contribution margin ratio = 60%

Traceable fixed expenses = $100,000

The computation of segment margin is shown below:-

Contribution of south division = Sales × Contribution margin ratio

= $500,000 × 60%

=$300,000

Variable cost = Sales - Contribution of south division

= $500,000 - $300,000

=$200,000

Segment margin = Sales - Variable cost - Avoidable fixed cost

=$500,000 - $200,000 - $100,000

=$200,000