Question

Devlin Company has two divisions, C and D. The overall company contribution margin ratio is 30%, with sales in the two divisions totaling $500,000. If variable expenses are $300,000 in Division C, and if Division C's contribution margin ratio is 25%, then sales in Division D must be: Select one: a. $50,000 b. $100,000 c. $150,000 d. $200,000

Answer 1

To find sales in Division D, we calculate Division C's sales using the known variable expenses and contribution margin ratio. After determining the sales for Division C are $400,000, we subtract this from the total sales of the company, which leaves us with $100,000 for Division D.

Step-by-step explanation:

To calculate sales in Division D for Devlin Company, we must use the provided contribution margin ratios and sales totals. Since the company's overall contribution margin ratio is 30% and the total sales are $500,000, we can determine the total contribution margin (CM) by multiplying these figures. Total CM = 30% of $500,000 = $150,000.

For Division C, with a contribution margin ratio of 25% and known variable expenses of $300,000, we can calculate its sales. The CM for Division C equals Sales (Division C) - $300,000. If the CM ratio is 25%, we can rearrange the CM formula to find Division C's sales: 0.25 = CM / Sales (Division C), so CM = 0.25 × Sales (Division C). Given that the variable expenses are $300,000, we can express Sales (Division C) like this: $300,000 = 0.75 × Sales (Division C). Therefore, Sales (Division C) = $300,000 / 0.75 = $400,000.

Next, we need to calculate Division D's sales. Since the total sales are $500,000 and we've found out that Division C's sales are $400,000, we subtract Division C's sales from the total sales: Sales (Division D) = Total sales - Sales (Division C) = $500,000 - $400,000 = <$strong>100,000. Therefore, the sales in Division D must be $100,000, which corresponds to option b.

Answer 2

b. $100,000

Step-by-step explanation:

Devlin Company

Calculation for Total company contribution margin

= $500,000 × 30% = $150,000

Calculation for Total company variable expenses

= $500,000 − $150,000 = $350,000

Division C contribution margin ratio

= (Sales − $300,000) ÷ Sales = 0.25

Sales − $300,000 = 0.25 × Sales

(0.75 × Sales) ÷ 0.75 = $300,000÷ 0.75

Sales = $400,000

Therefore Division D sales = Total company sales − Division C sales

= $500,000 − $400,000 = $100,000

Calculation for each Divisions

Total Company Division C Division D

Sales$500,000$400,000$100,000

Less variable expenses$350,000 $300,000 $50,000

Contribution margin $150,000 $100,000$ 50,000

Contribution margin ratio 0.30 0.25 0.50