Store Bsbwor501 Final Exam
EXAM ONE REVIEW – SOLUTIONS – Revised August 2014
Solution to Question 7: Segment Reporting - Page 1 of 2
O’Mara’s, Incorporated's income statement for the most recent month is given below.
For each of the following questions, refer back to the original data.
(a) If Store B sales increase by $20,000 with no change in traceable fixed expenses, by what should the overall company net operating income increase?
Answer: Increase by $8,000
Store B contribution margin ratio = $80,000 $200,000 = 40%
Additional net operating income = $20,000 40% = $8,000
(b) The marketing department believes that a promotional campaign at Store A costing $5,000 will increase sales by $15,000. If its plan is adopted, what impact will this have on overall company net operating income? …show more content…
However, this reduction can only be accomplished by an increase in fixed expenses of $8,000. If this proposal is implemented and sales remain constant, by what amount would overall company net operating income increase?
Answer: increase by $2,000
New amount for Store A variable expenses = $100,000 62% = $62,000
Change in net operating income = ($72,000 $62,000) $8,000
= $10,000 $8,000 = $2,000 increase
(d) If sales in Store B increase by $30,000 as a result of a $7,000 expenditure in fixed expenses, what would the impact be on the segment margin?
Answer: the segment margin should increase by $5,000
Store B contribution margin ratio = $80,000 $200,000 =
Solution to Question 7: Segment Reporting - Page 1 of 2
O’Mara’s, Incorporated's income statement for the most recent month is given below.
For each of the following questions, refer back to the original data.
(a) If Store B sales increase by $20,000 with no change in traceable fixed expenses, by what should the overall company net operating income increase?
Answer: Increase by $8,000
Store B contribution margin ratio = $80,000 $200,000 = 40%
Additional net operating income = $20,000 40% = $8,000
(b) The marketing department believes that a promotional campaign at Store A costing $5,000 will increase sales by $15,000. If its plan is adopted, what impact will this have on overall company net operating income? …show more content…
However, this reduction can only be accomplished by an increase in fixed expenses of $8,000. If this proposal is implemented and sales remain constant, by what amount would overall company net operating income increase?
Answer: increase by $2,000
New amount for Store A variable expenses = $100,000 62% = $62,000
Change in net operating income = ($72,000 $62,000) $8,000
= $10,000 $8,000 = $2,000 increase
(d) If sales in Store B increase by $30,000 as a result of a $7,000 expenditure in fixed expenses, what would the impact be on the segment margin?
Answer: the segment margin should increase by $5,000
Store B contribution margin ratio = $80,000 $200,000 =