Nuzum Corporation has two divisions: Division M and Division N. Data from the most recent month appear below: Management has allocated common fixed expenses to the Divisions based on their sales. The break-even in sales dollars for Division N is closest to:
A) $248,747
B) $496,987
C) $183,544
D) $303,405

Question

Nuzum Corporation has two divisions: Division M and Division N. Data from the most recent month appear below:  Management has allocated common fixed expenses to the Divisions based on their sales. The break-even in sales dollars for Division N is closest to:
A) $248,747 
B) $496,987 
C) $183,544 
D) $303,405

Quizplus · Accepted Answer

To calculate the break-even in sales dollars for Division N, we need to first calculate its contribution margin ratio:

Division N contribution margin ratio = (Sales - Variable expenses) / Sales
= ($1,105,864 - $630,105) / $1,105,864
= 0.43

Next, we can use the following formula to calculate the break-even in sales dollars:

Break-even sales dollars = (Fixed expenses + Division N allocated common fixed expenses) / Division N contribution margin ratio

Fixed expenses = $473,316
Division N allocated common fixed expenses = ($473,316 + $371,847) * (Sales for Division N / Total sales)
= $845,163 * (0.60 / 1.20)
= $422,582

Break-even sales dollars = ($473,316 + $422,582) / 0.43
= $1,387,898 / 0.43
= $3,225,809

Therefore, the closest answer choice is C) $183,544.

Nuzum Corporation Has Two Divisions: Division M and Division N