Answer:
B) $425,000
Explanation:
The calculation for finding the sales in Division W is given below,
Total Company Division T Division W
Sales $900,000
Variable expenses 200,000
Contribution margin ?
Contribution margin = CM ratio × Sales = 0.40 × $900,000 = $360,000
Total Company Division T Division W
Sales $900,000
Variable expenses ? 200,000
Contribution margin $360,000
Contribution margin = Sales – Variable expenses
$360,000 = $900,000 – Variable expenses
Variable expenses = $900,000 – $360,000 = $540,000
Total Company Division T Division W
Sales $900,000
Variable expenses 540,000 200,000 ?
Contribution margin $360,000
Total variable expenses = Division T variable expenses + Division T variable expenses
$540,000 = $200,000 + Division T variable expenses
Division T variable expenses = $540,000 – $200,000 = $340,000
Total Company Division T Division W
Sales $900,000 ?
Variable expenses 540,000 200,000 340,000
Contribution margin $360,000
CM ratio = 1 – Variable expense ratio
0.20 = 1 – Variable expense ratio
Variable expense ratio = 1 – 0.20 = 0.80
Variable expense ratio = Variable expenses ÷ Sales
0.80 = $340,000 ÷ Sales
Sales = $340,000 ÷ 0.80 = $425,000
The sales in Division W must be $425,000
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