Problem 8-30 (Part Level Submission) (a1) (B1) Calculate the segment margin for
ID: 2553154 • Letter: P
Question
Problem 8-30 (Part Level Submission)
(a1)
(B1) Calculate the segment margin for the Maple Avenue Store
Problem 8-30 (Part Level Submission)
Ridley and Scott Mercantile operates two stores, one on Maple Avenue and the other on Fenner Road. Results for the month of May, which is representative of all months, are as follows:Maple Avenue
Store Fenner Road
Store Total Sales $83,400 $120,000 $203,400 Variable expenses 31,900 85,000 116,900 Contribution margin 51,500 35,000 86,500 Direct fixed expenses 19,000 40,000 59,000 Common fixed expenses 4,500 5,200 9,700 Total fixed expenses 23,500 45,200 68,700 Operating income $28,000 $(10,200 ) $17,800
The following information pertains to Ridley and Scott’s operations.
• One-fourth of each store’s direct fixed expenses would continue if either store were closed. • Ridley and Scott allocates common fixed expenses to each store on the basis of sales dollars. • Management estimates that closing the Fenner Road store would result in a 10% decrease in the Maple Avenue store’s sales, while closing the Maple Avenue store would have no effect on the Fenner Road store’s sales.
Explanation / Answer
Maple Avenue Fenner Road Total Sales 83400 120000 203400 Variable Cost 31900 85000 116900 Contribution Margin 51500 35000 86500 Direct Fixed Expense 19000 40000 59000 Common Fixed Expense 4500 5200 9700 Total Fixed Expense 23500 45200 68700 Operating Income 28000 -10200 17800 A Maple Avenue Sales 75060 (83400*90%) Variable Cost 28710 (31900*90%) Contribution Margin 46350 Direct Fixed Expense 29000 (19000+1/4(40000)) Fenner 1/4 Cost will increase Common Fixed Expense 9700 Total Fixed Expense 38700 Operating Income 7650 B Maple Avenue Sales 83400 Variable Cost 31900 Contribution Margin 51500 Segmented Margin 61.75%