Question

Lyons company consists of two divisions: a and b. lyons company reported a contribution margin of $50,000 for division a, and had a contribution margin ratio of 30% in division b, when sales in division b were $200,000. operating income for the company was $25,000 and traceable fixed expenses were $40,000. what were lyons company's common fixed expenses?

a) $40,000.
b) $45,000.
c) $70,000.
d) $85,000.

Answer 1

To calculate Lyons Company's common fixed expenses, sum the contribution margins of both divisions, subtract the operating income to find total fixed expenses, and then subtract traceable fixed expenses. The common fixed expenses are $45,000.

Step-by-step explanation:

The question at hand involves calculating Lyons Company's common fixed expenses based on given financial data for its two divisions. To solve this, we need to understand the components of operating income.

Operating income can be calculated as the total contribution margin minus the total fixed expenses, which includes both traceable and common fixed expenses. Given that Division A has a contribution margin of $50,000 and Division B has a contribution margin ratio of 30% with sales of $200,000, we can calculate Division B's contribution margin as 0.30 x $200,000 = $60,000.

Adding both divisions' contribution margins gives us a total contribution margin of $50,000 + $60,000 = $110,000. From the operating income ($25,000), we can infer that total fixed expenses amount to $110,000 (total contribution margin) - $25,000 (operating income) = $85,000.

To find the common fixed expenses, we subtract the traceable fixed expenses ($40,000) from the total fixed expenses ($85,000), resulting in common fixed expenses of $45,000. Therefore, the answer is (b) $45,000.