Question

Max, Inc., has two divisions, South Division and North Division. South Division's sales, contribution margin ratio, and traceable fixed expenses are $500,000, 60%, and $100,000 respectively. What is the segment margin for the South Division?

Answer 1

The segment margin is $200,000

Step-by-step explanation:

Data Given:

Contribution margin ratio = 60%

The Sales = $500,000

Traceable fixed expenses = 100,000

Segment margin =?

By using the formula of segment margin, we have

Segment margin= segment revenue- variable cost- avoidable fixed cost

Contribution from south division = $500,000*60%

=$300,000

The variable cost = $500,000-$300,000

=$200,000

Substituting into the formula, we have

Segment margin = $500,000 - $200,000 - $100,000

= $200,000

Answer 2

$200,000

Step-by-step explanation:

Given that

Sales = 500,000

Contribution margin ratio = 60%

Traceable fixed expenses = 100,000

Recall that

Segment margin = Contribution margin - traceable fixed expenses

Also,

Contribution margin = contribution margin ratio × sales

= 500,000 × 60%

= 500,000 × 0.6

= 300,000

Therefore,

Segment margin

= 300,000 - 100,000

= $200,000

NOTE THAT, segment margin is the amount that is given by a segment towards fixed cost and the profits common in the business.