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.Ieso Corporation's total fixed expenses for the year were:
A) $40,000
B) $100,000
C) $140,000
D) $170,000

Question

Quizplus · Accepted Answer

To find the total fixed expenses, we need to first calculate the contribution margin of Store K. 
Contribution Margin = Sales - Variable Costs 
15% = 100% - Variable Costs 
Variable Costs = 85% 
Contribution Margin = $450,000 x 85% = $382,500 
Segment Margin of Store K = $30,000 
Traceable Fixed Expenses of Store K = $40,000 
Using the formula: Segment Margin = Traceable Fixed Expenses + Operating Income 
$30,000 = $40,000 + Operating Income 
Operating Income = -$10,000 
This means that Store K is not generating enough contribution margin to cover its traceable fixed expenses. 
Therefore, the total fixed expenses for the year must be: 
Total Sales - Total Variable Costs - Total Operating Income 
$450,000 - ($100,000 + $382,500) - (-$10,000) 
$450,000 - $482,500 + $10,000 
Total Fixed Expenses = $17,500 
Adding the traceable fixed expenses of both stores: 
$60,000 + $40,000 = $100,000 
Total Fixed Expenses = $17,500 + $100,000 = $117,500 
The closest option is C) $140,000.

Ieso Corporation Has Two Stores: J and K