Homework SourseONeill Incorporateds segmented income statement for the most
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 | $24,620 | ||
Solution
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 |
