Tb Mc Qu 05 75 Dc Construction Has Two Divisions Remodeling

1tb Mc Qu 05 75 Dc Construction Has Two Divisions Remodeling And Ne

Construction companies often allocate their fixed expenses to various divisions based on the nature of their operations. In this scenario, DC Construction has two core divisions: Remodeling and New Home Construction, each managed by an on-site supervisor earning an annual salary of $63,500. Additionally, each division employs a salaried estimator paid $43,000 annually. On the corporate level, the administrative team comprises two office assistants earning $50,500 and $32,950 respectively, and the president's salary stands at $174,000 annually. The question posed is: How much of these salaries are common fixed expenses?

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Understanding fixed expenses is essential for accurate financial analysis and division profitability assessment. Fixed costs are expenses that remain constant regardless of the level of production or services offered. In a multi-divisional company like DC Construction, it is critical to distinguish between common fixed expenses—costs shared across divisions—and specific fixed expenses attributable solely to individual divisions.

In this context, the salaries of the corporate office administrative assistants and the president are considered common fixed expenses because these costs are incurred regardless of the level of activity within each division. The salaries of the on-site supervisors and estimators, however, are directly linked to the divisions they serve and are thus considered direct fixed costs for each division.

Calculating the total common fixed expenses involves aggregating the salaries applicable across divisions and at the corporate level. The two administrative assistants earn combined salaries of $50,500 + $32,950 = $83,450, which are clearly shared across the operations. The president's salary of $174,000 also qualifies as a common fixed expense because it pertains to overall management costs not attributable to any single division. The on-site supervisors and estimators, although fixed salaries, are directly associated with specific divisions and are therefore not included in the common fixed expenses sum.

Summing the shared costs gives a total of $83,450 + $174,000 = $257,450. This figure represents the common fixed expenses that support both divisions without being directly attributable to either one individually. Recognizing these expenses as common fixed costs is valuable for managerial decision-making, budgeting, and calculating accurate division profitability measures.

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