Grass Valley Mining mines three products.Gold ore sells for $1,000 per ton, variable costs are $600 per ton, and fixed mining costs are $250,000.The segment margin for 2011 was $(100,000).The management of Grass Valley Mining was considering dropping the mining of gold ore.Only one-half of the fixed expenses are direct and would be eliminated if the segment was dropped. What were the sales (in tons) for 2011?

Question

Quizplus · Accepted Answer

The segment margin is equal to sales minus variable costs minus fixed costs. So, $100,000 = sales - $600 per ton * tons - $250,000. Since only half of the fixed costs are direct, the fixed costs that would be eliminated if the segment were dropped are $250,000 * 1/2 = $125,000. So, $100,000 = sales - $600 per ton * tons - $125,000. Solving for sales, we get sales = $600 per ton * tons + $225,000. Since the selling price is $1,000 per ton, we have $1,000 per ton * tons = $600 per ton * tons + $225,000. Solving for tons, we get tons = 375 tons.

Grass Valley Mining Mines Three Products