Question

Mangum Co. is a large company that segments its business into cost and profit centers. The Cost center for the manufacture of Product M2T incurred the following costs in October:

Direct Labor: $25/unit
Direct Materials: $80/unit
Variable Overhead: $15/unit
Traceable Fixed Costs: $62,000
Common Fixed Costs: $100,000
Sales were 2,000 units in October. Each unit sells for $210. The M2T Department is being evaluated on overall profitability. In September, the department margin was $100,000. By how much did the department margin increase or decrease in October?
a. $100,000 decrease
b. $118,000 increase
c. $18,000 increase
d. $82,000 decrease

Answer 1

Answer: c. $18,000 increase

Step-by-step explanation:

Department margin was $100,000 in September.

October Margin = Sales - Variable Costs - Traceable Fixed Costs

= (2,000 *( 210 - 25 - 80 - 15) ) - 62,000

= (2,000 * 90) - 62,000

= $118,000

= October Margin - September Margin

= 118,000 - 100,000

= $18,000 increase