nd a catering Kristina Food Pty Ltd operates a food business with two divisions;

Question

nd a catering Kristina Food Pty Ltd operates a food business with two divisions; there is a restaurant a service. A segmented profit and loss statement for the company's most recent year is as follows: Total company Restaurant Catering $500,000 $275,000 $187500 $125,000 87,500 $187,500 $37,500 Sales Less: Variable expenses Contribution margin Less: Traceable fixed costs Division segment margin Less common fixed costs $225,000 $145,000 $45,000 $100,000 $80,000 $142,500 562,500 $130,000 Net profit -$50,000 Required a) If the restaurant division increased its sales by $65,000, calculate the division segment margin the Restaurant division, and net profit for the total company. Assume that all fixed costs and cost behaviour patterns remained constant. (3 marks) b) Calculate the contribution margin ratio and division segment margin ratio for the Restaurant division before and after the change in sales. Explain the changes. (3 marks) Based upon the segment information above, what could Kristina do to return her business to profitability? (2 marks) c) Ractourant Catenn Cota C Total Com 656 ODD Poad 440 ?TO S ales fevenut las panse s Variable ex

Explanation / Answer

Answer = $220000

Explanation:

Original sales = $375000

Original VC = $187500

therefore variable cost ratio = variable cost / sales

= $187500/$375000

=50%

Now, sales increases by $65000

Therefore new sales = $375000+$65000

= $440000

Hence new variable cost = new sales × VC ratio

= $440000 × 50%

= $220000

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