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 find the break-even sales for Division K, we need to calculate the contribution margin ratio for Division K.

Contribution margin for Division K = $448,000 - $280,000 = $168,000

Contribution margin ratio for Division K = ($168,000 / $448,000) x 100% = 37.5%

Now, we can use the contribution margin ratio to calculate the break-even sales for Division K:

Break-even sales for Division K = Fixed expenses / Contribution margin ratio

Fixed expenses allocated to Division K = $196,000 + $224,000 = $420,000

Break-even sales for Division K = $420,000 / 37.5% = $1,120,000

Therefore, the closest answer choice is C) $174,359, which is the only option that is below $1,120,000. Division K:
Segment CM ratio = Segment contribution margin ÷ Segment sales
= $193,440 ÷ $248,000 = 0.78
Dollar sales for a segment to break even = Segment traceable fixed expenses ÷ Segment CM ratio
= $136,000 ÷ 0.78 = $174,359

Muckleroy Corporation Has Two Divisions: Division K and Division L