O\'Neill, Incorporated\'s segmented income statement for the most recent month i
ID: 2597016 • Letter: O
Question
O'Neill, Incorporated's segmented income statement for the most recent month is given below.
Total Company
Store A
Store B
Sales
$300,000
$100,000
$200,000
Variable expenses
192,000
$72,000
$120,000
Contribution margin
108,000
28,000
80,000
Traceable fixed expenses
76,000
21,000
55,000
Segment margin
32,000
7,000
25,000
Common fixed expenses
27,000
Net operating income
$5,000
For each of the following questions, refer back to the above original data.
If Store B sales increase by $20,000 with no change in fixed expenses, the overall company net operating income should:
increase by $2,500
increase by $5,000
increase by $8,000
increase by $12,000
Total Company
Store A
Store B
Sales
$300,000
$100,000
$200,000
Variable expenses
192,000
$72,000
$120,000
Contribution margin
108,000
28,000
80,000
Traceable fixed expenses
76,000
21,000
55,000
Segment margin
32,000
7,000
25,000
Common fixed expenses
27,000
Net operating income
$5,000
Explanation / Answer
Contribution margin ratio for B = Contribution margin/Sales
=(80,000/200,000)=40%
Hence increase in sales of $2000 of B would increase Contribution margin by =($20000*0.4)=$8000 and hence net income overall would increase by $8000.
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