Problem: The Rialto Company's income statement for May is given below:
Total Division L Division M
Sales 300,000 165,000 135,000
Variable expenses 153,000 99,000 54,000
Contribution margin 147,000 66,000 81,000
Traceable fixed expenses 97,000 45,000 52,000
Segment margin 50,000 21,000 29,000
Common fixed expenses 25,000
Net operating income 25,000
Reference:
If the sales in Division M increase by 25% while traceable fixed expenses decrease by 7,000, the segment margin for Division M should:
increase by 7,250
decrease by 17,750
increase by 13,250
increase by 27,250