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12 June, 12:48

Devlin Company has two divisions, C and D. The overall company contribution margin ratio is 30%, with sales in the two divisions totaling $500,000. If variable expenses are $300,000 in Division C, and if Division C's contribution margin ratio is 25%, then sales in Division D must be: Select one: a. $50,000 b. $100,000 c. $150,000 d. $200,000

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  1. 12 June, 13:00
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    b. $100,000

    Explanation:

    Devlin Company

    Calculation for Total company contribution margin

    = $500,000 * 30% = $150,000

    Calculation for Total company variable expenses

    = $500,000 - $150,000 = $350,000

    Division C contribution margin ratio

    = (Sales - $300,000) : Sales = 0.25

    Sales - $300,000 = 0.25 * Sales

    (0.75 * Sales) : 0.75 = $300,000: 0.75

    Sales = $400,000

    Therefore Division D sales = Total company sales - Division C sales

    = $500,000 - $400,000 = $100,000

    Calculation for each Divisions

    Total Company Division C Division D

    Sales$500,000$400,000$100,000

    Less variable expenses$350,000 $300,000 $50,000

    Contribution margin $150,000 $100,000$ 50,000

    Contribution margin ratio 0.30 0.25 0.50
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