Reardon Retail Company consists of two stores, A and B. Store A had sales of $80,000 during March, a contribution margin ratio of 30%, and a segment margin of $11,000. The company as a whole had sales of $200,000, a contribution margin ratio of 36%, and segment margins for the two stores totaling $31,000. If net operating income for the company was $15,000 for the month, the traceable fixed expenses in Store B must have been:
A) $16,000
B) $20,000
C) $31,000
D) $28,000

Question

Quizplus · Accepted Answer

First, we can calculate the contribution margin for the whole company using the given information:

Contribution margin = (Total sales * Contribution margin ratio) - Traceable fixed expenses

$200,000 * 0.36 - Traceable fixed expenses = $31,000

Traceable fixed expenses = $28,000

Next, we can use the segment margin formula to find Store B's segment margin:

Segment margin = (Store sales * Contribution margin ratio) - Store traceable fixed expenses

Store B's segment margin + $11,000 (from Store A) = $31,000

Store B's segment margin = $20,000

Finally, we can use the segment margin formula again to find Store B's traceable fixed expenses:

$80,000 * 0.3 - Store B's traceable fixed expenses = $20,000

Store B's traceable fixed expenses = $16,000

Therefore, the answer is D.

Reardon Retail Company Consists of Two Stores, a and B