The operations of Smits Corporation are divided into the Childs Division and Jac
ID: 2480442 • Letter: T
Question
The operations of Smits Corporation are divided into the Childs Division and Jackson Division. Projections for next year are as follows:
Childs Division
Jackson Division
Total
Sales
$250,000
$180,000
$430,000
Variable costs
90,000
100,000
190,000
Contribution margin
$160,000
$80,000
$240,000
Direct fixed costs
75,000
62,500
137,500
Segment margin
$85,000
$17,500
$102,500
Allocated common costs
15,000
10,000
25,000
Operating income
$70,000
$7,500
$77,500
Operating income for Smits Corporation as a whole, if Jackson Division were dropped, would be
The operations of Smits Corporation are divided into the Childs Division and Jackson Division. Projections for next year are as follows:
Childs Division
Jackson Division
Total
Sales
$250,000
$180,000
$430,000
Variable costs
90,000
100,000
190,000
Contribution margin
$160,000
$80,000
$240,000
Direct fixed costs
75,000
62,500
137,500
Segment margin
$85,000
$17,500
$102,500
Allocated common costs
15,000
10,000
25,000
Operating income
$70,000
$7,500
$77,500
Operating income for Smits Corporation as a whole, if Jackson Division were dropped, would be
Explanation / Answer
If Direct fixed cost is avoidable Particulars Childs division Jackson Division Total Sales 250000 0 250000 Variable cost 90000 0 90000 Contribution margin 160000 0 160000 Direct Fixed cost 75000 0 75000 Segment Margin 85000 0 85000 Allocated common costs 25000 0 25000 Operating income 60000 0 60000 If Direct fixed cost is unavoidable Particulars Childs division Jackson Division Total Sales 250000 0 250000 Variable cost 90000 0 90000 Contribution margin 160000 0 160000 Direct Fixed cost 75000 62500 137500 Segment Margin 85000 -62500 22500 Allocated common costs 15000 10000 25000 Operating income 70000 -72500 -2500