Use the following information to answer the following Questions
The following information was taken from the segmented income statement of Restin, Inc., and the company's three divisions:

In addition, the company incurred common fixed costs of $18,000.
-Assume that the Los Angeles division increases its promotion expense, a controllable fixed cost, by $10,000. As a result, revenues increased by $50,000. If variable expenses are tied directly to revenues, the new Los Angeles segment contribution margin is:
A) $12,500.
B) $22,500.
C) $32,500.
D) $50,000.
E) $60,000

Question

Use the following information to answer the following Questions
The following information was taken from the segmented income statement of Restin, Inc., and the company's three divisions:

In addition, the company incurred common fixed costs of $18,000.
-Assume that the Los Angeles division increases its promotion expense, a controllable fixed cost, by $10,000. As a result, revenues increased by $50,000. If variable expenses are tied directly to revenues, the new Los Angeles segment contribution margin is:
A) $12,500. 
B) $22,500. 
C) $32,500. 
D) $50,000. 
E) $60,000

Quizplus · Accepted Answer

The new segment contribution margin is the difference between the increase in revenues and the increase in controllable fixed costs. In this case, the increase in revenues is $50,000 and the increase in controllable fixed costs is $10,000, so the new segment contribution margin is $50,000 - $10,000 = $40,000. However, since variable expenses are tied directly to revenues, the new segment contribution margin is 40% of the increase in revenues, or $50,000 * 40% = $20,000.

Use the Following Information to Answer the Following Questions