O\'Neill, Incorporated\'s segmented income statement for the most recent month i
ID: 2405165 • Letter: O
Question
O'Neill, Incorporated's segmented income statement for the most recent month is given below.
For each of the following questions, refer back to the above original data.
A proposal has been made that will lower variable expenses in Store A to 62% of sales. However, this reduction can only be accomplished by an increase in Store A's traceable fixed expenses of $12,650. If this proposal is implemented and sales remain constant, overall company net operating income should:
rev: 07_14_2016_QC_CS-55575, 10_06_2016_QC_CS-64567, Noreen 4e Rechecks 2017-24-03
increase by $1,980
decrease by $12,650
decrease by $1,980
remains the same
Total Company Store A Store B Sales $407,000 $133,000 $274,000 Variable expenses 264,230 97,090 167,140 Contribution margin 142,770 35,910 106,860 Traceable fixed expenses 89,800 31,600 58,200 Segment margin 52,970 $4,310 $48,660 Common fixed expenses 28,350 Net operating income $24,620Explanation / Answer
Answer
Store A
Working
Current Scenario
Proposed Scenario
A
Sales
$ 133,000.00
$ 133,000.00
B
Variable expenses
$ 97,090.00
$ 82,460.00 [$ 133,000 x 62%]
C = A - B
Contribution margin
$ 35,910.00
$ 50,540.00
D
Traceable Fixed expense
$ 31,600.00
$ 44,250.00 [$ 31,600 + $ 12,650]
E = C - D
Segment Margin
$ 4,310.00
$ 6,290.00
A [calculated above]
Segment Margin under Proposed Scenario
$ 6,290.00
B [calculated above]
Segment Margin under Current Scenario
$ 4,310.00
C = A - B
Increase in Net Operating Income
$ 1,980.00
Correct Answer
Option #1: Increase by $ 1,980
Store A
Working
Current Scenario
Proposed Scenario
A
Sales
$ 133,000.00
$ 133,000.00
B
Variable expenses
$ 97,090.00
$ 82,460.00 [$ 133,000 x 62%]
C = A - B
Contribution margin
$ 35,910.00
$ 50,540.00
D
Traceable Fixed expense
$ 31,600.00
$ 44,250.00 [$ 31,600 + $ 12,650]
E = C - D
Segment Margin
$ 4,310.00
$ 6,290.00
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