The following information is available for Pet Store Company and its two divisio

Question

The following information is available for Pet Store Company and its two divisions, Pet Supplies and

Training.

Whole Company Pet Supply Dev Trainig Devision

Net sales $170,000 $70,000 $100,000

Fixed costs:

Controllable by division managers 16,000 10,000 6,000

Controllable by others 8,000 6,000 2,000

Variable costs:

Cost of merchandise sold 46,000 28,000 18,000

Operating expenses 14,000 8,000 6,000

Unallocated costs 14,000

Required:

A) Compute the contribution margin for the Pet Supplies Division.

B) Compute the contribution controllable by the manager of the Training Division.

C) Compute the contribution by segment for the Training Division.

D) Compute the income before taxes for the whole company.

Explanation / Answer

A. Contribution margin
Sales = 70000
Less:Variable cost
cost of merchandise sold =-28000
operating exp. = -8000
Unalocated cost = -7000

Contibution = 27000
Contribution margin ratio= (27000/70000)*100=38.57%

B. contribution of training division
Sales= 100000
Less: Variable cost
Cost of merchandise = 18000
operating exp. = 6000
unallocated cost = 7000

Contriution= 69000


c. contribution by segment for the Training Division
sales = 170000
Less: V.C.
Cost of merchandise = -46000
operating cost = -14000
unalocated cost = -14000

contribution= 96000

d. income before taxes
sales = 170000
Less: V.C.
Cost of merchandise = -46000
operating cost = -14000
unalocated cost = -14000
Less: Fixed cost
controllable cost = -16000
controllable by others = -8000

Profit befor tax = 72000

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