Chang Corporation has two divisions, T and W.The company's overall contribution margin ratio is 40%, with sales in the two divisions totaling $900,000.If variable expenses are $200,000 in Division T and if Division W's contribution margin ratio is 20%, the sales in Division W must be:

A) $200,000
B) $425,000
C) $700,000
D) $340,000

Question

Paige Shields · Accepted Answer

Final Answer : B, Explanation :    Contribution margin = CM ratio × Sales = 0.40 × $900,000 = $360,000   Contribution margin = Sales - Variable expenses$360,000 = $900,000 - Variable expensesVariable expenses = $900,000 - $360,000 = $540,000   Total variable expenses = Division T variable expenses + Division T variable expenses$540,000 = $200,000 + Division T variable expensesDivision T variable expenses = $540,000 - $200,000 = $340,000   CM ratio = 1 - Variable expense ratio0.20 = 1 - Variable expense ratioVariable expense ratio = 1 - 0.20 = 0.80Variable expense ratio = Variable expenses ÷ Sales0.80 = $340,000 ÷ SalesSales = $340,000 ÷ 0.80 = $425,000

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