Ferrar Corporation has two major business segments: Consumer and Commercial. Data for the segments and for the company for March appear below: In addition, common fixed expenses totaled $210,000 and were allocated as follows: $122,000 to the Consumer business segment and $88,000 to the Commercial business segment.A properly constructed segmented income statement in a contribution format would show that the segment margin of the Consumer business segment is:
A) $164,000
B) $62,000
C) $394,000
D) $184,000

Question

Ferrar Corporation has two major business segments: Consumer and Commercial. Data for the segments and for the company for March appear below:  In addition, common fixed expenses totaled $210,000 and were allocated as follows: $122,000 to the Consumer business segment and $88,000 to the Commercial business segment.A properly constructed segmented income statement in a contribution format would show that the segment margin of the Consumer business segment is:
A) $164,000 
B) $62,000 
C) $394,000 
D) $184,000

Quizplus · Accepted Answer

To calculate the segment margin for the Consumer business segment, we need to use the contribution approach.

Consumer segment margin = (Consumer segment sales - Consumer segment variable expenses) - Consumer segment direct fixed expenses

Plugging in the numbers from the table:

Consumer segment margin = ($550,000 - $276,000) - $122,000 = $152,000 - $122,000 = $30,000

Therefore, the segment margin for the Consumer business segment is $30,000.

However, we need to remember that the common fixed expenses were allocated to the segments. To calculate the overall profitability of each segment, we need to add back the allocated fixed expenses to the segment margin.

Consumer business segment profit = $30,000 + $122,000 = $152,000

Commercial business segment profit = $304,000 + $88,000 = $392,000

Therefore, the total segment margin for the Consumer business segment would be $152,000, and the correct answer is D) $184,000.

Ferrar Corporation Has Two Major Business Segments: Consumer and Commercial