Muckleroy Corporation has two divisions: Division K and Division L. 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 K is closest to:
A) $244,103
B) $206,154
C) $174,359
D) $470,945

Question

Muckleroy Corporation has two divisions: Division K and Division L. 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 K is closest to:
A) $244,103 
B) $206,154 
C) $174,359 
D) $470,945

Quizplus · Accepted Answer

To solve for the break-even point, we need to find the contribution margin ratio for each division.

For Division K:
Sales = $300,000
Variable expenses = $210,000
Contribution margin = $90,000
Contribution margin ratio = ($90,000 / $300,000) = 0.3

For Division L:
Sales = $500,000
Variable expenses = $400,000
Contribution margin = $100,000
Contribution margin ratio = ($100,000 / $500,000) = 0.2

Next, we need to find the total common fixed expenses, which is $120,000.

To allocate the common fixed expenses based on sales, we need to multiply the total common fixed expenses by the contribution margin ratio for each division:

Division K: $120,000 x 0.3 = $36,000
Division L: $120,000 x 0.2 = $24,000

Now we can calculate the break-even point for Division K:

Break-even sales = (Variable expenses + Allocated fixed expenses) / Contribution margin ratio
Break-even sales = ($210,000 + $36,000) / 0.3
Break-even sales = $82,000 / 0.3
Break-even sales = $273,333

Therefore, the closest break-even point in sales dollars for Division K is $274,000 (rounded to the nearest thousand), which is closest to answer choice C: $174,359.

Muckleroy Corporation Has Two Divisions: Division K and Division L