Question

What is the Walmart division break-even in sales dollars?

What is the Target division break-even in sales dollars?

What is the company's overall break-even in sales dollars?

What would be the company's overall net operating income if the company's operated at its two division break-even points?

	Total company	Walmart division	Target division
Sales	$572,000	$222,000	$350,000
Variable expenses	178,940	59,940	119,000
Contribution margin	393,060	162,060	231,000
Traceable fixed expenses	252,000	98,000	154,000
Segment margin	141,060	64,060	77,000
Common fixed expense	91,520	35,520	56,000
Net operating income	$49,540	$28,540	$21,000

The common fixed expenses have been allocated to the divisions on the basis of sales

Answer 1

Solution a, b and c:

Computation of Contribution margin ratio
	Total Company	Walmart Division	Target Division
Sales	$572,000	$222,000	$350,000
Variable Expenses	$178,940	$59,940	$119,000
Contribution margin	$393,060	$162,060	$231,000
Contribution margin Ratio (Contribution margin / Sales)	68.72%	73.00%	66.00%
Break-even in sales Dollars (Fixed expenses / Contribution margin Ratio)	($252000+$91520)/68.72% =	$98000/73% =	$154000/66% =
	$499,906.99	$134,246.58	$233,333.33

Solution d:

If the company's operated at its two division break-even points, then the company will not be able to recover Common fixed expenses.

Therefore overall Net operating income will be ($91,520). i.e. loss of $91,520.