Question

Assume a company has two divisions, a and b. the company’s overall sales, overall contribution margin ratio, common fixed expenses, and net operating income are $500,000, 48%, $50,000, and $10,000, respectively. if division a has a contribution margin of $180,000 and division b’s contribution margin ratio is 30%, then what is division a’s sales?

Answer 1

The value of the sales of division A from the contribution margin ratio, and common fixed expenses given is $300,000.

How to calculate sales?

Overall sales = $500,000

Overall Contribution margin will be:

= Overall Sales x Overall Contribution margin ratio

= $500,000 x 48%;

= $240,000

Division B's Contribution margin will be :

= Overall Contribution margin less Division A's Contribution margin

= $240,000 - $180,000

= $60,000

Division B's Sales will be:

= Division B's Contribution margin/Division B's Contribution margin ratio

= $60,000/30%

= $200,000

Therefore, Division A's Sales :

= Overall Sales - Division B's Sales

= $500,000 - $200,000

= $300,000

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