Magenta Company has two divisions that produce two different products. Following is information pertaining to its two divisions for the month of June: $\begin{array}{lll}&\text { Division Gold}&\text { Division Silver }\
\text { Variable selling and administrative expenses } & \$ 30,000.00 & \$ 20,000.00 \
\text { Direct fixed manufacturing expenses } & \$ 12,000.00 & \$ 9,000.00 \
\text { Sales } & \$ 150,000.00 & \$ 120,000.00 \
\text { Direct fixed selling and administrative } & &\
\text { expenses } & \$ 20,000.00 & \$ 15,000.00 \
\text { Variable manufacturing expenses } & \$ 60,000.00 & \$ 50,000.00\
\end{array}$
Common expenses are $8,000 for the month of June.
Compute the segment margin for Division Silver.
A)$30,000
B)$40,000
C)$28,000
D)$26,000

Question

Quizplus · Accepted Answer

Segment margin is calculated by subtracting the traceable fixed costs (both manufacturing and selling & administrative) and variable costs (both manufacturing and selling & administrative) from the sales of the segment. For Division Silver, the calculation is as follows: Sales ($120,000) - Variable selling and administrative expenses ($20,000) - Direct fixed manufacturing expenses ($9,000) - Direct fixed selling and administrative expenses ($15,000) - Variable manufacturing expenses ($50,000) = $26,000. Common expenses are not subtracted in the calculation of segment margin as they are not traceable to specific segments.

Magenta Company Has Two Divisions That Produce Two Different Products