Keller Company is evaluating its two divisions,North Division and South Division.Data for the North Division include sales of $250,000,variable costs of $125,000,and fixed costs of $200,000,50 percent of which are traceable to the division.Data for the South Division include sales of $300,000,variable costs of $175,000,and fixed costs of $225,000,60 percent of which are traceable to the division.
-Divisional income (or segment margin)for South Division is
A)$(100,000).
B)$(75,000).
C)$(10,000).
D)$125,000.

Question

Keller Company is evaluating its two divisions,North Division and South Division.Data for the North Division include sales of $250,000,variable costs of $125,000,and fixed costs of $200,000,50 percent of which are traceable to the division.Data for the South Division include sales of $300,000,variable costs of $175,000,and fixed costs of $225,000,60 percent of which are traceable to the division. 
-Divisional income (or segment margin)for South Division is
A)$(100,000).
B)$(75,000).
C)$(10,000).
D)$125,000.

Quizplus · Accepted Answer

To calculate the segment margin of the South Division, we need to first calculate the traceable fixed costs for this division. 
Traceable fixed costs for South Division = 60% x $225,000 = $135,000 
Now we can calculate the segment margin for South Division:

Segment margin for South Division = Sales - Variable Costs - Traceable Fixed Costs 
= $300,000 - $175,000 - $135,000 
= $-10,000

A negative segment margin indicates that the division is not generating enough profit to cover its traceable fixed costs, and is therefore operating at a loss.

Keller Company Is Evaluating Its Two Divisions,North Division and South