Cervetti Corporation has two major business segments-East and West. In July, the

Question

Cervetti Corporation has two major business segments-East and West. In July, the East business segment had sales revenues of $250,000, variable expenses of $140,000, and traceable fixed expenses of $32,000. During the same month, the West business segment had sales revenues of $920,000, variable expenses of $484,000, and traceable fixed expenses of $175,000. The common fixed expenses totaled $258,000 and were allocated as follows: $129,000 to the East business segment and $129,000 to the West business segment.

A properly constructed segmented income statement in a contribution format would show that the segment margin of the East business segment is:

A $140,000

B $78,000

C $(19,000)

D $(45,000)

Cervetti Corporation has two major business segments-East and West. In July, the East business segment had sales revenues of $250,000, variable expenses of $140,000, and traceable fixed expenses of $32,000. During the same month, the West business segment had sales revenues of $920,000, variable expenses of $484,000, and traceable fixed expenses of $175,000. The common fixed expenses totaled $258,000 and were allocated as follows: $129,000 to the East business segment and $129,000 to the West business segment.

A properly constructed segmented income statement in a contribution format would show that the segment margin of the East business segment is:

Explanation / Answer

Segment margin is usually calculated by deducting traceable fixed costs from the contribution margin of the segment.

Segment margin of the East business segment = Contribution margin - Traceable fixed costs

= 110000(NOTE 1) - 32000

= $78,000

(NOTE 1) :- Contribution margin = Sales - variable costs

= 250000 - 140000 = 110000

Conclusion :- B $78,000 is the right answer.

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