Ruhlen Corporation's Small Craft division reported a net operating loss of $2,300,000 in the most recent reporting period.The division absorbed common fixed corporate expenses of $2,500,000.The division's segment margin is

Question

Quizplus · Accepted Answer

To find the segment margin, we need to deduct the direct expenses attributable to the Small Craft division from its revenues. However, we are not given any revenue figures. Therefore, we cannot determine the segment margin directly. Instead, we can use the formula for calculating segment margin:
Segment margin = (Net Sales - Direct Expenses) - Common Fixed Expenses
Since we do not have the figures for net sales and direct expenses, we cannot use this formula directly either. But we are given two important pieces of information: the net operating loss and the common fixed expenses. Due to the nature of these two figures, we can deduce that the direct expenses must be less than $2.3 million (the net operating loss), otherwise the division would have had an even bigger loss. We can also deduce that the net sales must be less than $2.3 million + $2.5 million = $4.8 million, otherwise the segment would have shown a profit, and not a loss. Therefore, the segment margin must be negative, and its absolute value can be calculated as follows:
Absolute segment margin = Net operating loss + Common fixed expenses = $2.3 million + $2.5 million = $4.8 million
Segment margin = - $200,000
Therefore, the correct choice is C, $200,000.

Ruhlen Corporation's Small Craft Division Reported a Net Operating Loss