Mangum Co. is a large company that segments its business into cost and profit centers. The Cost center for the manufacture of Product M2T incurred the following costs in October:
Sales were 2,000 units in October. Each unit sells for $210. The M2T Department is being evaluated on overall profitability. In September, the department margin was $100,000.
By how much did the department margin increase or decrease in October?
A) $100,000 decrease
B) $18,000 increase
C) $82,000 decrease
D) $118,000 increase
E) None of the above

Question

Mangum Co. is a large company that segments its business into cost and profit centers. The Cost center for the manufacture of Product M2T incurred the following costs in October:
 Sales were 2,000 units in October. Each unit sells for $210. The M2T Department is being evaluated on overall profitability. In September, the department margin was $100,000.
By how much did the department margin increase or decrease in October?
A) $100,000 decrease 
B) $18,000 increase 
C) $82,000 decrease 
D) $118,000 increase 
E) None of the above

Quizplus · Accepted Answer

Contribution margin per unit = Sales - Variable Costs
= $210 sales price - $25 DL - $80 DM - $15 VO
= $90/unit
Total Contribution Margin = $90/unit x 2,000 units = $180,000
Department Margin = Contribution Margin - Traceable Fixed Costs
= $180,000 - $62,000 = $118,000
Increase/(Decrease) in Department Margin
= October Department Margin - September Department Margin
= $118,000 - $100,000 = $18,000 Increase

Mangum Co Is a Large Company That Segments Its Business into into Cost