Muhn 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)$212,340
B)$246,596
C)$370,000
D)$159,574

Question

Muhn 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)$212,340 
B)$246,596 
C)$370,000 
D)$159,574

Quizplus · Accepted Answer

To calculate the break-even in sales dollars for Division K, we need to first calculate the contribution margin ratio and then divide the total fixed costs by the contribution margin ratio.

Contribution margin for Division K = $610,000 - $381,250 = $228,750
Contribution margin ratio = ($228,750 ÷ $610,000) × 100% = 37.50%

Total fixed common expenses = $576,000 × (3,012,500 ÷ $12,050,000) = $144,000

Total fixed expenses for Division K = $720,000 + $144,000 = $864,000

Break-even in sales dollars for Division K = $864,000 ÷ 37.50% = $2,304,000

Therefore, the closest option is D) $159,574.

Muhn Corporation Has Two Divisions: Division K and Division L