Segment A had sales revenue of $900,000 and the following costs: direct materials, $252,000; direct labor, $36,000; variable manufacturing overhead, $72,000; and fixed manufacturing overhead, $315,000. If segment A is dropped, 25% of the fixed manufacturing overhead costs would be avoided. Calculate the segment profit.

Question

Quizplus · Accepted Answer

Segment profit is calculated as sales revenue minus total costs. Total costs include direct materials, direct labor, variable manufacturing overhead, and the avoidable portion of fixed manufacturing overhead. The avoidable fixed manufacturing overhead is 25% of $315,000, which is $78,750. Total costs are $252,000 + $36,000 + $72,000 + $78,750 = $438,750. Segment profit is $900,000 - $438,750 = $461,250.

Segment a Had Sales Revenue of $900,000 and the Following