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Simon Hinson Company operates two divisions: Gordon and Ronin. A segmented income statement for the company’s most recent year is as follow:
Less variable expense
Less traceable fixed costs
Division segment margin
Less common fixed cost
A. If the Gordon Division increased its sales by $85,000 per year, how much would the company’s net income change? Assume that all cost behavior patterns remained constant.
B. Assume that the Ronin Division increased sales by $100,000, the Gorgon Division sales remained the same, and there was no change in fixed costs.
1. Calculate the net income amounts for each division and the total company.
2. Calculate the segment margin ratios before and after these changes and comment on the results. Explain the changes.
C. How do the sales increases and decreases impact divisional contribution marhin ratio and segment margin ratio?
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