Koen Company consists of two divisions, C and D.In March, Koen Company reported a contribution margin of £50,000 for Division C.Division D had a contribution margin ratio of 30% and sales in Division D were £250,000.Net operating income for the company was £30,000 and traceable fixed expenses for the two divisions totaled £50,000.Lyons Company's common fixed expenses were 5 Show how changes in sales, expenses and assets affect an organizations ROI
A)£55,000.
B)£75,000.
C)£45,000.
D)£40,000.

Question

Quizplus · Accepted Answer

Common fixed expenses = 5% of £250,000 (Division D sales) = £12,500. Total fixed expenses = £50,000 (traceable) + £12,500 (common) = £62,500. Contribution margin for both divisions = Net operating income + Total fixed expenses = £30,000 + £62,500 = £92,500. Division C's contribution margin is £50,000, so Division D's contribution margin = £92,500 - £50,000 = £42,500. Division D's sales are £250,000, so its contribution margin ratio = Contribution margin / Sales = £42,500 / £250,000 = 17%. The question mistakenly states Division D's contribution margin ratio as 30%, which is not needed to calculate the common fixed expenses.

Koen Company Consists of Two Divisions, C and D