Consider the following portion of a segmented income statement for the year just ended. Assume that the fixed expenses of Division X include $30,000 of direct expenses and that the discontinuance of the department will not affect the sales of the other departments nor reduce the common expenses. $$\begin{array} { l r }
& \text { Division } x \
\text { Sales } & \$ 100,000 \
\text { Variable manufacturing costs } & 60,000 \
\text { Gross profit }& \$ 40,000 \
\text { Fixed expenses (direct and allocated) }& 50,000 \
\text { Operating income (loss) } & \$ ( 10,000 )
\end{array}$$ What is X's divisional segment margin?
A)$(10,000)
B)$40,000
C)$10,000
D)$100,000

Question

Consider the following portion of a segmented income statement for the year just ended. Assume that the fixed expenses of Division X include $30,000 of direct expenses and that the discontinuance of the department will not affect the sales of the other departments nor reduce the common expenses. $$\begin{array} { l r } 
 & \text { Division } x \
\text { Sales } & \$ 100,000 \
\text { Variable manufacturing costs } & 60,000 \
 \text { Gross profit }& \$ 40,000 \
\text { Fixed expenses (direct and allocated) }& 50,000 \
\text { Operating income (loss) } & \$ ( 10,000 )
\end{array}$$ What is X's divisional segment margin?
A)$(10,000)
B)$40,000
C)$10,000
D)$100,000

Quizplus · Accepted Answer

The divisional segment margin is calculated by subtracting the direct fixed expenses from the gross profit. In this case, the gross profit is $40,000 and the direct fixed expenses are $30,000, leaving a segment margin of $10,000.

Consider the Following Portion of a Segmented Income Statement for the Year