Ieso Corporation has two stores: J and K. During November, Ieso Corporation reported a net operating income of $30,000 and sales of $450,000. The contribution margin in Store J was $100,000, or 40% of sales. The segment margin in Store K was $30,000, or 15% of sales. Traceable fixed expenses are $60,000 in Store J, and $40,000 in Store K.Variable expenses in Store K totaled:
A) $70,000
B) $110,000
C) $200,000
D) $130,000

Question

Quizplus · Accepted Answer

We know that the total net operating income for Ieso Corporation is $30,000 and the total sales is $450,000. We can use this information to find the total variable expenses:

Total contribution margin = Total sales - Total variable expenses
$30,000 + Total traceable fixed expenses = $100,000 (Contribution margin for Store J) + $30,000 (Segment margin for Store K)
$30,000 + Total traceable fixed expenses = $130,000
Total traceable fixed expenses = $100,000 (Store J traceable fixed expenses) + $40,000 (Store K traceable fixed expenses)
Total traceable fixed expenses = $140,000

$30,000 + $140,000 = $450,000 - Total variable expenses
$170,000 = $450,000 - Total variable expenses
Total variable expenses = $280,000

We know that the contribution margin for Store J is $100,000 and traceable fixed expenses for Store J are $60,000. Using this information, we can find the variable expenses for Store J:

$100,000 = $450,000 (Store J sales) x 0.4 (Contribution margin ratio) - Variable expenses for Store J
Variable expenses for Store J = $270,000 - $100,000 = $170,000

Now we can use the segment margin for Store K and traceable fixed expenses for Store K to find the variable expenses for Store K:

$30,000 = $450,000 (Store K sales) x 0.15 (Segment margin ratio) - Variable expenses for Store K
Variable expenses for Store K = $70,000

Therefore, the answer is D) $130,000 because we found that the total variable expenses for both stores are $280,000, the variable expenses for Store J are $170,000, and the variable expenses for Store K are $70,000. This means that the variable expenses for the remaining portion of the company (after deducting the variable expenses for Store J and K) must be $40,000 ($280,000 - $170,000 - $70,000).

Ieso Corporation Has Two Stores: J and K