Nantua Corporation has two divisions, Southern and Northern.The following information was taken from last year's income statement segmented by division: Net operating income last year for Nantua Corporation was $400, 000. If the Northern Division's sales last year were $300, 000 higher, how would this have changed Nantua's net operating income? (Assume no change in selling prices, variable expenses per unit, or fixed expenses. )
A)$30, 000 increase
B)$80, 000 increase
C)$120, 000 increase
D)$300, 000 increase

Question

Nantua Corporation has two divisions, Southern and Northern.The following information was taken from last year's income statement segmented by division:  Net operating income last year for Nantua Corporation was $400, 000. If the Northern Division's sales last year were $300, 000 higher, how would this have changed Nantua's net operating income? (Assume no change in selling prices, variable expenses per unit, or fixed expenses. )
A)$30, 000 increase 
B)$80, 000 increase 
C)$120, 000 increase 
D)$300, 000 increase

Quizplus · Accepted Answer

Northern Division:
CM ratio = Contribution margin ÷ Sales
= $600, 000 ÷ $1, 500, 000 = 0.40
Change in contribution margin = CM ratio × Change in sales
= 0.40 × $300, 000 = $120, 000

Nantua Corporation Has Two Divisions, Southern and Northern