The following information pertains to Aria Co.(Aria)and its operating segments for the year ended December 31,20X6:
Sales to unaffiliated customers $2,000,000
Intersegment sales of products $600,000
Interest earned on loans to other industry segments $40,000
Aria and all its divisions are engaged solely in manufacturing operations.Aria evaluates divisional performance based on controllable contribution by segments.Aria has a reportable segment if that segment's revenue exceeds:
A) $200,000
B) $260,000
C) $204,000
D) $264,000

Question

Quizplus · Accepted Answer

Aria evaluates divisional performance based on controllable contribution by segments, not revenue. Therefore, the relevant factor for determining reportable segments is not specified in the question. The correct answer can be calculated as follows:

Revenue of the reportable segment = Intersegment sales of products / (1 - Controllable contribution rate)

Controllable contribution rate = (Sales to unaffiliated customers - Variable costs) / Sales to unaffiliated customers

Assuming that variable costs are $1,000,000, the controllable contribution rate is 0.5.

Revenue of the reportable segment = $600,000 / (1 - 0.5) = $1,200,000

Therefore, the reportable segment must have revenue exceeding $1,200,000, which corresponds to answer choice B.

The Following Information Pertains to Aria Co