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. $700,000 b. $200,000 c. $340,000 d. $425,000

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.