Question

Uchimura Corporation has two divisions: the AFE Division and the GBI Division. The corporation's net operating income is $12,100. The AFE Division's divisional segment margin is $83,100 and the GBI Division's divisional segment margin is $47,900. What is the amount of the common fixed expense not traceable to the individual divisions?

Answer 1

Answer: $118,900

Step-by-step explanation:

The Segment margin is a measure in finance used to assess the profit or loss of a particular division or product so essentially it is used to compare profitability across different components in a company.

The Segment Margin already includes the costs related to the Segment. In calculating operating income then we subtract the fixed costs from the segment contributions to find out the Operating Income as shown below,

Segment Margin - Fixed Costs = Net Operating Income

The fixed costs in the formula would therefore be the untraceable fixed costs as the costs for the segments have already been ascribed to them.

Making Fixed Costs the subject of the formula would look thus,

Fixed Costs = Segment margin - Net Operating Income

= (83,100 + 47,900) - 12,100

= $118,900

$118,900 is the common fixed cost that is not traceable to the individual divisions.

If you need any clarification do react or comment.