Sosinski Corporation has two divisions: Domestic Division and Foreign Division. The following data are for the most recent operating period: The common fixed expenses have been allocated to the divisions on the basis of sales. The Domestic Division's break-even sales is closest to:

Question

Sosinski Corporation has two divisions: Domestic Division and Foreign Division. The following data are for the most recent operating period:  The common fixed expenses have been allocated to the divisions on the basis of sales. The Domestic Division's break-even sales is closest to:

Quizplus · Accepted Answer

To calculate the break-even sales for the Domestic Division, we need to first calculate the contribution margin ratio. 
Contribution margin ratio = (Total sales - Variable expenses) / Total sales 
For the Domestic Division: 
Contribution margin ratio = (100,000 - 60,000) / 100,000 = 0.4 
Now, we can use the following formula to calculate the break-even sales: 
Break-even sales = (Fixed expenses / Contribution margin ratio) 
For the Domestic Division: 
Break-even sales = (120,000 / 0.4) = $300,000 
However, this is the break-even sales for the entire company. We need to allocate the common fixed expenses to each division based on their sales. 
Total allocated common fixed expenses = $60,000 + $40,000 = $100,000 
Common fixed expenses allocated to Domestic Division = ($100,000 / $400,000) x $200,000 = $50,000 
New break-even sales for Domestic Division = ($120,000 + $50,000) / 0.4 = $425,000 
The closest option to this is C) $178,947. Therefore, the answer is C.

Sosinski Corporation Has Two Divisions: Domestic Division and Foreign Division