Chang Corporation has two divisions, T and W. The company's overall contribution margin ratio is 40%, with sales in the two divisions totaling $900,000. If variable expenses are $200,000 in Division T and if Division W's contribution margin ratio is 20%, the sales in Division W must be:
A) $200,000
B) $425,000
C) $700,000
D) $340,000

Question

Quizplus · Accepted Answer

The overall contribution margin is 40% of $900,000, which is $360,000. Division T's contribution margin is $900,000 - $200,000 = $700,000. Therefore, Division W's contribution margin is $360,000 - $700,000 = -$340,000. Since Division W's contribution margin ratio is 20%, its sales must be $425,000 to achieve this contribution margin.

Chang Corporation Has Two Divisions, T and W