Question

O'Neill, Incorporated's income statement for the most recent month is given below. If sales in Store B increase by $30,000 as a result of a $7,000 expenditure in fixed expenses: Select one: a. the contribution margin should increase by $18,000 b. the segment margin should increase by $12,000 c. the contribution margin should increase by $11,000 d. the segment margin should increase by $5,000

Answer 1

Answer: $5,000

Step-by-step explanation:

The Contribution Margin (CM) given it $80,000 for Store B.

The Contribution margin ratio is;

= CM / Sales

= 80,000 / 200,000

= 40%

Given an increase of $30,000 in sales, increase in CM is;

= 30,000 * 40%

= $12,000

Traceable fixed costs for that increase was $7,000 so the segment margin will be;

= CM - Traceable fixed cost

= 12,000 - 7,000

= $5,000