The president of Ravens Inc., attended a seminar about the contribution margin model and returned to her
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The president was told that the fixed expenses of $30,000 included $21,000 that had been split evenly between divisions because they were general corporate expenses. After looking at the statement, the president exclaimed. "I knew it! Division B is a drag on the whole company. Close it down!"
Required:
a. Evaluate the president's remark.
b. Calculate what the company's net income would be if Division B were closed down.
c. Write a policy statement related to the allocation of fixed expenses.
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...
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Related Book For
Accounting What the Numbers Mean
ISBN: 978-1259535314
11th edition
Authors: David Marshall, Wayne McManus, Daniel Viele
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