O'Neill, Incorporated's segmented income statement for the most recent month is given below. For each of the following questions, refer back to the above original data. If sales in Store B increase by $30, 000 as a result of a $5, 000 increase in traceable fixed expenses:
A)the contribution margin should increase by $18, 000
B)the segment margin should increase by $17, 000
C)the contribution margin should increase by $12, 000
D)the segment margin should increase by $7, 000

Question

O'Neill, Incorporated's segmented income statement for the most recent month is given below.  For each of the following questions, refer back to the above original data. If sales in Store B increase by $30, 000 as a result of a $5, 000 increase in traceable fixed expenses:
A)the contribution margin should increase by $18, 000 
B)the segment margin should increase by $17, 000 
C)the contribution margin should increase by $12, 000 
D)the segment margin should increase by $7, 000

Quizplus · Accepted Answer

Store B CM ratio = Contribution margin ÷ Sales = $80, 000 ÷ $200, 000 = 0.40
Change in contribution margin = CM ratio × Change in sales = 0.40 × $30, 000 = $12, 000
Change in segment margin = Change in contribution margin - Change in traceable fixed costs = $12, 000 - $5, 000 = $7, 000

O'Neill, Incorporated's Segmented Income Statement for the Most Recent Month