Chugg promotes the idea that the company can help students prepare for academic success in college. Chugg operates two divisions: (1) major publishers, and (2) niche publishers for specialized courses. The company is considering the possibility of adding a “custom" product line that accumulates material from rogue professors who use their own material or test banks. The company's current segment income statement follows: Major Niche Total Sales $ 12,000,000 $ 4,000,000 $ 16,000,000 Variable expenses 2,400,000 1,000,000 3,400,000 Contribution margin 9,600,000 3,000,000 12,600,000 Fixed expenses: Traceable AND Controllable 4,100,000 2,400,000 6,500,000 Traceable NOT Controllable 3,000,000 1,800,000 4,800,000 Segment margin 2,500,000 (1,200,000) 1,300,000 Fixed expenses: Common 1,000,000 Net income 300,000 The company expects the Custom Division to generate an additional contribution margin of $1,400,000. Custom Division will hire new content managers for $1,000,000. The new product line also would increase sales in the Major Division by 10.0%. However, the Custom Division would reduce the Niche Division sales by 35.0%. Compute the income increase (or decrease) of adding the Custom Division. O Income DECREASES $80,000 O Income INCREASES $400,000 O Income INCREASES $520,000 O Income INCREASES $680,000 O None of the other answers are correct
Chugg promotes the idea that the company can help students prepare for academic success in college. Chugg operates two divisions: (1) major publishers, and (2) niche publishers for specialized courses. The company is considering the possibility of adding a “custom" product line that accumulates material from rogue professors who use their own material or test banks. The company's current segment income statement follows: Major Niche Total Sales $ 12,000,000 $ 4,000,000 $ 16,000,000 Variable expenses 2,400,000 1,000,000 3,400,000 Contribution margin 9,600,000 3,000,000 12,600,000 Fixed expenses: Traceable AND Controllable 4,100,000 2,400,000 6,500,000 Traceable NOT Controllable 3,000,000 1,800,000 4,800,000 Segment margin 2,500,000 (1,200,000) 1,300,000 Fixed expenses: Common 1,000,000 Net income 300,000 The company expects the Custom Division to generate an additional contribution margin of $1,400,000. Custom Division will hire new content managers for $1,000,000. The new product line also would increase sales in the Major Division by 10.0%. However, the Custom Division would reduce the Niche Division sales by 35.0%. Compute the income increase (or decrease) of adding the Custom Division. O Income DECREASES $80,000 O Income INCREASES $400,000 O Income INCREASES $520,000 O Income INCREASES $680,000 O None of the other answers are correct
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Chugg promotes the idea that the company can help students prepare for academic success in college. Chugg operates two divisions: (1)
major publishers, and (2) niche publishers for specialized courses. The company is considering the possibility of adding a "custom" product
line that accumulates material from rogue professors who use their own material or test banks. The company's current segment income
statement follows:
Major
Niche
Total
Sales
$ 12,000,000 $
4,000,000 $
16,000,000
Variable expenses
2,400,000
1,000,000
3,400,000
Contribution margin
9,600,000
3,000,000
12,600,000
Fixed expenses:
Traceable AND Controllable
4,100,000
2,400,000
6,500,000
Traceable NOT Controllable
3,000,000
1,800,000
4,800,000
Segment margin
2,500,000
(1,200,000)
1,300,000
Fixed expenses: Common
1,000,000
Net income
$
300,000
The company expects the Custom Division to generate an additional contribution margin of $1,400,000. Custom Division will hire new
content managers for $1,000,000. The new product line also would increase sales in the Major Division by 10.0%. However, the Custom
Division would reduce the Niche Division sales by 35.0%. Compute the income increase (or decrease) of adding the Custom Division.
O Income DECREASES $80,000
O Income INCREASES $400,000
O Income INCREASES $520,000
O Income INCREASES $680,000
O None of the other answers are correct
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