Question

Vulcan Company's contribution format income statement for June is as follows: Vulcan Company Income Statement For the Month Ended June 30 Sales $ 900,000 Variable expenses 400,000 Contribution margin 500,000 Fixed expenses 485,000 Net operating income $ 15,000 Management is disappointed with the company's performance and is wondering what can be done to improve profits. By examining sales and cost records, you have determined the following: a. The company is divided into two sales territories-Northern and Southern. The Northern Territory recorded $400,000 in sales and $160,000 in variable expenses during June; the remaining sales and valable expenses were recorded in the Southern Territory. Fixed expenses of $184,000 and $150,000 are traceable to the Northern and Southern Territories, respectively. The rest of the fixed expenses are common to the two territories. b. The company is the exclusive distributor for two products-Paks and Tibs. Sales of Paks and Tibs totaled $290,000 and $110,000, respectively, in the Northern Territory during June. Variable expenses are 29% of the selling price for Paks and 69% for Tibs. Cost records show that $145,000 of the Northern Territory's fixed expenses are traceable to Paks and $26,400 to Tibs, with the remainder common to the two products. Required: Ha. Prepare contribution format segmented income statements for the total company broken down between sales territories 1-5. Prepare contribution format segmented income statements for the Northern Territory broken down by product line

Answer 1

1a) Segmented income Statement for the Total Company Sales Territory Total Company Northren South Amount % Amount % Amount % Sales 900000 100.0% 400000 100.0% 500000 100.0% Variabel Expenses 400000 44.4% 160000 40.0% 240000 48.0% Contribution Margin 500000' 55.6% 240000 60.0% 260000 52.0% Traceable Fixed Expenses 334000 37.1% 184000 46.0% 150000 30.0% Territory segment Margin 166000' 18.4% 56000 14.0% 110000 22.0% Common Fixed Cost 151000 16.8% Net operating Income 15000 1.7% 1b) Segmented income Statement for the Northren Territory Product Lines Northern Territory Paks Tibs Amount % Amount % Amount % Sale 400000 100.0% 290000 100.0% 110000 100.0% Variabel Expenses 160000 40.0% 84100 29.0% 75900 69.0% Contribution Margin 240000 60.0% 205900 71.0% 34100 31.0% Traceable Fixed Expenses 171400 42.9% 145000 50.0% 26400 24.0% Product line Segment Margin 68600 17.2% 60900 21.0% 7700 7.0% common Fixed Cost 12600 3.2% Net operating Income 56000 14.0%