Problem: Simon Hinson Company operates two divisions: Gordon and Ronin. A segmented income statement for the company's most recent year is as follows:
Total Company Gordon Division Ronin Division
Sales $850,000 $250,000 $600,000
Less variable expenses 505,000 145,000 360,000
Contribution margin $345,000 $105,000 $240,000
Less traceable fixed costs 145,000 45,000 100,000
Division segment margin $200,000 $60,000 $140,000
Less common fixed costs 130,000
Net income $70,000
Required to do:
A) If the Gordon Division increased its sales by $85,000 per year, how much would the company's net income change? Assume that all cost behavior patterns remained constant.
B) Assume that the Ronin Division increased sales by $100,000, the Gordon Division sales remained the same, and there was no change in fixed costs.
1. Calculate the net income amounts for each division and the total company.
2. Calculate the segment margin ratios before and after these changes and comment on the results. Explain the changes.
C. How do the sales increases and decreases impact divisional contribution margin ratio and segment margin ratio?