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Practice Exam Questions – Chapter 6 (pt 2)
1. Cook Company consists of two divisions, Division C and Division D. In March, the company
reported a contribution margin of $50,000 for Division C. Division D had a contribution margin
ratio of 30% and sales in Division D were $250,000. Net operating income for the company was
$30,000 and traceable fixed expenses for the two divisions totaled $50,000. The company’s
common fixed expenses were:
a. $75,000.
b. $45,000.
c. $40,000.
d. $30,000.
2. Tanner Corporation has two major business segments—East and West. In December, the East
business segment had sales revenues of $690,000, variable expenses of $352,000, and traceable
fixed expenses of $104,000. During the same month, the West business segment had sales revenues
of $140,000, variable expenses of $56,000, and traceable fixed expenses of $24,000. The common
fixed expenses totaled $162,000 and were allocated as follows: $89,000 to the East business
segment and $73,000 to the West business segment. Using what you learned about segment
reporting this semester, the best measure of income to use for evaluating the performance internally
of the East Division manager would report segment margin of:
a. $352,000.
b. $145,000.
c. $294,000.
d. $234,000.
3. Molina Company sells 20 different products to both commercial and residential customers in 6
different states. In which of the following ways could the company’s income statement be
segmented?
a. by state and then further segmented by product
b. by state and then further segmented by customer type
c. by product and then further segmented by customer type
d. All of the above are correct answers.
2
Use the following information for the next TWO questions:
Margolis Company has two divisions that reported the following results for October:
Division M Division Q
Sales $100,000 $200,000
Variable expenses as a percent of sales 50% 40%
Segment margin $10,000 $80,000
Net operating income for October was $65,000.
4. Common fixed expenses must have been:
a. $80,000.
b. $105,000.
c. $25,000.
d. $130,000.
5. If Division M had been closed at the beginning of October, net operating income would have
been:
a. $55,000.
b. ($35,000).
c. $15,000.
d. $43,333.
6. Beneke Company has segmented its income statement into its four geographic regions. Last
month, one of the regions reported sales of $140,000, contribution margin of $56,000, and
segment margin of $21,000. If this segment can increase its sales by $10,000 next month, by
how much will company net operating income increase, assuming no changes the company’s
cost structure?
a. $6,000
b. $4,000
c. $1,500
d. $10,000
3
Answer Key
1. B
2. D
3. D
4. C
5. A
6. B