Asked by Bunmi Olaniyi on Jul 08, 2024
Verified
Younie Corporation has two divisions: the South Division and the West Division.The corporation's net operating income is $26,900.The South Division's divisional segment margin is $42,800 and the West Division's divisional segment margin is $29,900.What is the amount of the common fixed expense not traceable to the individual divisions?
A) $56,800
B) $69,700
C) $72,700
D) $45,800
Common Fixed Expense
Overhead costs that are not directly attributed to a specific product or service but are shared across multiple business segments.
Divisional Segment Margin
The profit margin achieved by a specific division or segment of a company, indicating the profitability of that division.
Net Operating Income
The profit derived from a company's regular business operations, excluding deductions for interest and taxes.
- Understand the impact of segment margins and common fixed expenses on overall net operating income.
- Differentiate and calculate the effects of traceable and common fixed expenses on divisional and corporate financial performance.
Verified Answer
Common fixed expenses = $26,900 - ($42,800 + $29,900)
Common fixed expenses = $26,900 - $72,700
Common fixed expenses = -$45,800
Since the answer cannot be negative, it means that there was an error in calculation. The correct calculation of common fixed expenses is:
Common fixed expenses = Net operating income - total segment margin
Common fixed expenses = $26,900 - ($42,800 + $29,900)
Common fixed expenses = $26,900 - $72,700
Common fixed expenses = $45,800
Therefore, the correct answer is D.
Total net operating income = Total segment margin - Common fixed expenses
$26,900 = $72,700 - Common fixed expenses
Common fixed expenses = $72,700 - $26,900 = $45,800
Learning Objectives
- Understand the impact of segment margins and common fixed expenses on overall net operating income.
- Differentiate and calculate the effects of traceable and common fixed expenses on divisional and corporate financial performance.
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