The Rial Company's income statement for June is given below:
-If the sales in Division L increase by 30% while common fixed expenses in the company decrease by $10,000,the segment margin for Division L should:
A)increase by $32,400
B)increase by $10,800
C)decrease by $22,400
D)decrease by $65,600

Question

The Rial Company's income statement for June is given below:
-If the sales in Division L increase by 30% while common fixed expenses in the company decrease by $10,000,the segment margin for Division L should:
A)increase by $32,400 
B)increase by $10,800 
C)decrease by $22,400 
D)decrease by $65,600

Quizplus · Accepted Answer

CM ratio = Contribution margin F1F1F1S1F1F1F10 Sales = $108,000 F1F1F1S1F1F1F10 $180,000 = 0.60
Change in contribution margin = CM ratio F1F1F1S1F1F1F10 Change in sales = 0.60 F1F1F1S1F1F1F10 (0.30 F1F1F1S1F1F1F10 $180,000)= $32,400
The decrease in common fixed expenses has no impact on the Division L segment margin.Therefore,the Division L segment margin will increase by $32,400.

The Rial Company's Income Statement for June Is Given Below