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    Problem on Business Scenario Changes

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    Total Company G Division R 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 cost 130,000
    Net income 70,000

    a. G division increased sales by $85,000 per year, how much would the company's net income change? Cost behaviors remained same

    b. assume the R division increased sales by $100,000, the G divisiom sales remained the same
    and no change in fixed costs.
    1. calcuclate the net income for each division and the total for company
    2. calculate the segment margin ratios before and after these changes

    please show work

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    Solution Preview

    The solution is based on tabulation of past & current data with necessary changes in scenario as stated in the question. The solution is attached in the form of a excel sheet.

    Posting ID: 341948
    OTA ID: 105575

    Let us first tabulate the current scenario as following:
    Yearly Income statement: Total Company G Division R Division
    Sales: $850,000 $250,000 $600,000
    Less variable expense: $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 cost: $130,000 $40,345 $89,655 <---see notes below
    Net ...

    Solution Summary

    First to tabulate the data from the simple text description for past case and for 2 new current cases.

    The revision in cases are incorporated to get the net income change values for different divisions of the company and for the total company.