2C2H CURRENT BUSINESS SEGMENT OPERATIONS FOR WHITMAN, A MASS RETAILER...
251.
CSO: 2C2f
LOS: 2C2h
Current business segment operations for Whitman, a mass retailer, are presented below.
Merchandise Automotive
Restaurant Total
Sales
$500,000
$400,000
$100,000 $1,000,000
Variable costs
300,000
200,000
70,000
570,000
Fixed costs
100,000
100,000
50,000
250,000
Operating income (loss) $100,000
$100,000
$ (20,000) $ 180,000
Management is contemplating the discontinuance of the Restaurant segment since “it is
losing money.” If this segment is discontinued, $30,000 of its fixed costs will be
eliminated. In addition, Merchandise and Automotive sales will decrease 5% from their
current levels. When considering the decision, Whitman’s controller advised that one of
the financial aspects Whitman should review is contribution margin. Which one of the
following options reflects the current contribution margin ratios for each of Whitman’s
business segments?
Retailing
Automotive
Restaurant
a.
60%
50%
30%.
b.
60%
50%
70%.
c.
40%
50%
70%.
d.
40%
50%
30%.