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 Store B sales increase by $20,000 with no change in fixed expenses,the overall company net operating income should:
A)increase by $2,500
B)increase by $5,000
C)increase by $8,000
D)increase by $12,000

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 Store B sales increase by $20,000 with no change in fixed expenses,the overall company net operating income should:
A)increase by $2,500 
B)increase by $5,000 
C)increase by $8,000 
D)increase by $12,000

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 × $20,000 = $8,000
Fixed expenses are not affected,so the $8,000 increase in contribution margin should increase net operating income by $8,000.

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