Question

Rock Inc. has three divisions, Granite, Lime and Nina. All fixed costs are unavoidable. Following is the income statement for the previous year: Granite $507,000 183.000 324,000 259.000 $ 65,00 Sales Variable Coats Contribution Margin Fixed costs allocated) Pro An Total $1,007,000 407,600 Nina $274,000 $226,000 124.300 100,300 149,700 125,700 159.250 109,750 19.550) 5 5 .950 59.400 528.000 1,400 3. What would Rock's profit margin be if the Lime division were dropped? ProfitT'S 149.700 b. What would Rock's profit margin be if the Nina division were dropped?

Answer 1

Granite $ 324,000 $ Contribution Margin Fixed Costs (allocated) Profit Margin Nina 125,700 $ $ $ Total 449,700 528,000 (78,300) The basis of allocation of fixed cost is not given. Hence, it is taken only in total column. If Lime division is dropped, there will be a loss of $ 78,300 Loss $ (78,300) Granite $ 324,000 $ Contribution Margin Fixed Costs (allocated) Profit Margin Lime 149,700 $ $ $ Total 473,700 528,000 (54,300) If Nina division is droppped, there will be a loss of $ 54,300 Loss $ (54,300)