Consider the following portion of a segmented income statement for the year just ended. Assume fixed expenses of Division X include $30,000 of direct expenses and that the discontinuance of the department will not affect the sales of the other departments nor reduce the common expenses. What is X's divisional segment margin?
A) ($10,000)
B) $40,000
C) $10,000
D) $100,000

Question

Consider the following portion of a segmented income statement for the year just ended. Assume fixed expenses of Division X include $30,000 of direct expenses and that the discontinuance of the department will not affect the sales of the other departments nor reduce the common expenses.  What is X's divisional segment margin?
A) ($10,000) 
B) $40,000 
C) $10,000 
D) $100,000

Quizplus · Accepted Answer

To calculate X's divisional segment margin, we need to subtract X's direct and allocated fixed expenses from its contribution margin.

Contribution margin = $140,000 - $80,000 = $60,000
Fixed expenses = $30,000
Divisional segment margin = contribution margin - fixed expenses = $60,000 - $30,000 = $30,000

However, since the question asks for X's segment margin after discontinuing the department, we need to remove the $20,000 of direct expenses associated with that department from the contribution margin.

Adjusted contribution margin = $140,000 - $80,000 - $20,000 = $40,000
Fixed expenses = $30,000
Divisional segment margin = adjusted contribution margin - fixed expenses = $40,000 - $30,000 = $10,000

Therefore, the correct answer is C) $10,000.

Consider the Following Portion of a Segmented Income Statement for the Year