Nantor Corporation has two divisions, Southern and Northern. The following information was taken from last year's income statement segmented by division: Net operating income last year for Nantor Corporation was $800,000.
If the Northern Division's sales last year were $600,000 higher, how would this have changed Nantor's net operating income? (Assume no change in selling prices, variable expenses per unit, or fixed expenses.)
A) $240,000 increase
B) $60,000 increase
C) $160,000 increase
D) $1,200,000 increase

Question

Nantor Corporation has two divisions, Southern and Northern. The following information was taken from last year's income statement segmented by division:  Net operating income last year for Nantor Corporation was $800,000.
If the Northern Division's sales last year were $600,000 higher, how would this have changed Nantor's net operating income? (Assume no change in selling prices, variable expenses per unit, or fixed expenses.)
A) $240,000 increase 
B) $60,000 increase 
C) $160,000 increase 
D) $1,200,000 increase

Quizplus · Accepted Answer

Northern Division:
CM ratio = Contribution margin ÷ Sales
= $1,200,000 ÷ $3,000,000 = 0.40
Change in contribution margin = CM ratio × Change in sales
= 0.40 × $600,000 = $240,000

Nantor Corporation Has Two Divisions, Southern and Northern