Ieso Company has two stores: J and K. During November, Ieso Company reported a net operating income of $30,000 and sales of $450,000. The contribution margin in Store J was $100,000, or 40% of sales. The segment margin in Store K was $30,000, or 15% of sales. Traceable fixed expenses are $60,000 in Store J, and $40,000 in Store K.
-Ieso Company's total fixed expenses for the year were:
A) $40,000
B) $100,000
C) $140,000
D) $170,000

Question

Quizplus · Accepted Answer

Both Store J and Store K have traceable fixed expenses. The traceable fixed expenses for Store J are $60,000 and for Store K is $40,000. Therefore, the total traceable fixed expenses are $100,000.

To calculate the total fixed expenses, we need to use the formula: Total Fixed Expenses = Net Operating Income - Total Contribution Margin - Total Traceable Fixed Expenses

Total Contribution Margin = Contribution Margin in Store J + Segment Margin in Store K
Total Contribution Margin = ($100,000 / 0.4) + ($30,000 / 0.15) 
Total Contribution Margin = $250,000 + $200,000 
Total Contribution Margin = $450,000

Net Operating Income = $30,000

Total Traceable Fixed Expenses = $100,000

Total Fixed Expenses = $30,000 - $450,000 - $100,000 
Total Fixed Expenses = ($520,000)

Therefore, the best choice is C, $140,000.

Ieso Company Has Two Stores: J and K