Question

Rock Inc. has three divisions, Granite, Lime and Nina. All fixed costs are unavoidable Following is the income statement for the previous year:

	Granite		Lime				Nina				Total
Sales	$	513,000		$	270,000			$	225,000		$	1,008,000
Variable Costs		188,000			124,200				100,200			412,400
Contribution Margin		325,000			145,800				124,800			595,600
Fixed Costs (allocated)		267,000			163,250				115,750			546,000
Profit Margin	$	58,000		$	(17,450	)		$	9,050		$	49,600

a. What would Rock’s profit margin be if the Lime division were dropped?

b. What would Rock’s profit margin be if the Nina division were dropped?

Answer 1