Question

Refer to the Pennington Products information below.

Pennington Products has two product lines: R-100 and R-200. Revenue and cost information for each of the product lines are as follows:

                                                    R-100            R-200
Selling price per unit                      $45                $65
Variable costs per unit                   $15                $26
   
Traceable fixed expenses      $250 000       $300 000

Pennington has common fixed expenses of $250 000 per year. Last year, the company produced and sold 30 000 units of R-100 and 20 000 units of R-200.

What is the segment margin ratio of the R-200 product line?

		37 per cent
		32 per cent
		27 per cent
		60 per cent

Answer 1

Computation of Segment margin ratio of R-200 product line:

Segment margin ratio of R-200 = Segment Margin/ Segment Revenue*100

Computation of Segment Margin pf R-200:

Therefore, Segment margin ratio of R-200 = $480,000/ $1,300,000*100 = 37%

It should be noted that Common fixed expenses shoulg=d be ignored while calculating Segment margin ratio of one particular line and can be used while calculating for the whole company only.

Therefore, option a i.e. 37 percent is the correct answer.