Question

Uchimura Corporation has two divisions: the AFE Division and the GBI Division. The corporation's net operating income is $10,900. The AFE Division's divisional segment margin is $77,100 and the GBI Division's divisional segment margin is $43,100. What is the amount of the common fixed expense not traceable to the individual divisions?

Answer 1

Answer:

$54,650

Explanation:

Total Net operating income from the two divisions is the difference between the total sales and the total expenses. The total expense is made up of the fixed cost and variable cost.  Whilst the variable cost is measured and unique to each departments, the fixed cost is not attributable to a single department.

The variable cost and sales are dependent on the level of activities. The sales less the variable cost gives the contribution margin.

As such, contribution less fixed cost gives the net operating income.

Common fixed cost

= ($77,100 + $43,100 - $10,900)/2

= $54,650

This cost would have been subtracted from each department to get the net operating income hence the division by 2.