Hamilton, Inc. has two divisions, Parker and Blaine. Following is the income statement for the previous year: Of the total fixed costs, $600,000 are common fixed costs that are allocated equally between the divisions. What is Parker's segment margin?
A) $150,000
B) $450,000
C) $600,000
D) $1,200,000

Question

Hamilton, Inc. has two divisions, Parker and Blaine. Following is the income statement for the previous year:  Of the total fixed costs, $600,000 are common fixed costs that are allocated equally between the divisions. What is Parker's segment margin?
A) $150,000 
B) $450,000 
C) $600,000 
D) $1,200,000

Quizplus · Accepted Answer

To calculate Parker's segment margin, we need to subtract its direct fixed costs and allocated common fixed costs from its segment revenue.

Parker's segment revenue = $4,000,000 
Parker's direct fixed costs = $1,800,000 
Allocated common fixed costs = ($600,000 / 2) = $300,000 
Parker's segment margin = Segment revenue - Direct fixed costs - Allocated common fixed costs

Parker's segment margin = $4,000,000 - $1,800,000 - $300,000 = $1,900,000 - $300,000 = $1,600,000

Therefore, Parker's segment margin is $1,600,000, which is option B.