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Chavez Company has two product lines—M and P. Line M had sales of $200,000 during October,...

Chavez Company has two product lines—M and P. Line M had sales of $200,000 during October, a segment margin of 20%, and traceable fixed expenses of $30,000. The company as a whole had a contribution margin ratio of 30% and $135,000 in total contribution margin. Based on this information, total variable expenses for product P must have been: A)$130,000. B)$155,000. C)$185,000. D)$315,000. Answer: C Show process thanks. why is c

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Answer #1

Answer : - option c. $185,000.

Product line M

Sales = $200,000, segment margin/profit = 20%

Profit = $200,000 × 20% = $40,000.

Fixed cost = $30,000 (given in the question)

Contributions cost = fixed cost + profit = $30,000 + $40,000 = $70,000

Product line P

Contribution = $135,000 - $70,000 = $65,000

Company's contribution margin = 30% and contribution is $135,000.

(Sales of product line M + sales of product line P) × 30% = contribution of the company

($200,000 + P sales) × 30% = 135,000

($200,000 + P sales) = $135,000 ÷ 30%

$200,000 + P sales = $450,000

P sales = $450,000 - $200,000 = $250,000.

Variables cost of product line P = sales - contribution

= $250,000 - $65,000 = $185,000.

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