Question

Devlin Company has two divisions, C and D. The overall company contribution margin ratio is 30%, with sales in the two divisions totaling $500,000. If variable expenses are $300,000 in Division C, and if Division C's contribution margin ratio is 25%, then sales in Division D must be: Select one: a. $50,000 b. $100,000 c. $150,000 d. $200,000

Answer 1

Answer:

b. $100,000

Explanation:

Devlin Company

Calculation for Total company contribution margin

= $500,000 × 30% = $150,000

Calculation for Total company variable expenses

= $500,000 − $150,000 = $350,000

Division C contribution margin ratio

= (Sales − $300,000) ÷ Sales = 0.25

Sales − $300,000 = 0.25 × Sales

(0.75 × Sales) ÷ 0.75 = $300,000÷ 0.75

Sales = $400,000

Therefore Division D sales = Total company sales − Division C sales

= $500,000 − $400,000 = $100,000

Calculation for each Divisions

Total Company Division C Division D

Sales$500,000$400,000$100,000

Less variable expenses$350,000 $300,000 $50,000

Contribution margin $150,000 $100,000$ 50,000

Contribution margin ratio 0.30 0.25 0.50