Question

johnson company operates two plants: plant a and plant b. johnson company reported for the year just ended a contribution margin of $50,000 for plant a. plant b had sales of $200,000 and a contribution margin ratio of 30%. net operating income for the company was $20,000 and traceable fixed costs for the two plants totalled $50,000. what were johnson company's common fixed costs for last year?

Answer 1

Johnson Company's common fixed costs for the last year were calculated by determining the contribution margins of both plants, subtracting the traceable fixed costs, and then comparing the result with the net operating income. The common fixed costs were found to be $40,000.

Step-by-step explanation:

To calculate Johnson Company's common fixed costs for last year, we need to understand several key financial terms including contribution margin, contribution margin ratio, traceable fixed costs, and common fixed costs. The contribution margin is sales revenue minus variable costs and the contribution margin ratio is the contribution margin as a percentage of total sales.

First, we determine Plant B's contribution margin using the provided contribution margin ratio:

• Plant B's Contribution Margin = 30% of $200,000 = $60,000

Next, we combine the contribution margins of Plant A and Plant B:

• Total Contribution Margin = $50,000 (Plant A) + $60,000 (Plant B) = $110,000

We subtract the traceable fixed costs from the total contribution margin to find the total operating income before common fixed costs:

• Operating Income before Common Fixed Costs = Total Contribution Margin - Traceable Fixed Costs = $110,000 - $50,000 = $60,000

Finally, we subtract the reported net operating income from the operating income before common fixed costs to find the common fixed costs:

• Common Fixed Costs = Operating Income before Common Fixed Costs - Net Operating Income = $60,000 - $20,000 = $40,000

Thus, Johnson Company's common fixed costs for the last year were $40,000.