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		408,000
Contribution margin		492,000
Fixed expenses		455,000
Net operating income	$	37,000

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:

1. The company is divided into two sales territories—Northern and Southern. The Northern Territory recorded $400,000 in sales and $168,000 in variable expenses during June; the remaining sales and variable expenses were recorded in the Southern Territory. Fixed expenses of $204,000 and $120,000 are traceable to the Northern and Southern Territories, respectively. The rest of the fixed expenses are common to the two territories.

2. The company is the exclusive distributor for two products—Paks and Tibs. Sales of Paks and Tibs totaled $210,000 and $190,000, respectively, in the Northern territory during June. Variable expenses are 23% of the selling price for Paks and 63% for Tibs. Cost records show that $90,300 of the Northern Territory’s fixed expenses are traceable to Paks and $34,200 to Tibs, with the remainder common to the two products.

Required: PLEASE FIX THE PERCENTAGE FOR ME!

1-a. Prepare contribution format segmented income statements for the total company broken down between sales territories.

Sales Territory Total Company Northern Southern Amount % Amount % Amount % Sales $900,000 100.0 $400,000 44.4 $500,000 55.6 Variable expenses 408,000 100.0 168,000 41.2 240,000 58.8 Contribution margin 492,000 0.0 232,000 3.2 260,000 (3.2) Traceable fixed expenses 324,000 71.2 204,000 44.8 120,000 26.4 Territorial segment margin 168,000 (71.2) $28,000 (41.6) $140,000 (29.6) Common fixed expenses 131,000 28.8 Net operating income $37,000 (100.0)

1-b. Prepare contribution format segmented income statements for the Northern Territory broken down by product line.

Product Line Northern Territory Paks Tibs Amount % Amount % Amount % Sales $400,000 100.0 $210,000 100.0 $190,000 100.0 Variable expenses 168,000 42.0 48,300 23.0 119,700 71.3 Contribution margin 232,000 58.0 161,700 77.0 70,300 28.7 Traceable fixed expenses 124,500 31.1 90,300 43.0 34,200 16.8 Product line segment margin 107,500 26.9 $71,400 34.0 $36,100 11.9 Common fixed expenses 79,500 19.9 Sales territory segment margin $28,000 7.0

Answer 1

Required: 1a Vulcan Company's Segment Income Statement For the Total Company For the month Ended June 30 Sales Territory Total Company Northern Southern Amount % Amount % Amount % Sales 9000001 100.0 400000 100.0 500000 100.0 Less : Variable cost 408000 45.31 168000 42.01 240000 48.00 Contribution 4920001 54.7 232000 58.0 260000 52.0 Traceable Fixed expenses 324000 36.01 204000 51.01 120000 24.01 Territory Segment margin 1680001 18.7 280001 7.0 140000 28.01 Common fixed expenses 131000 14.6 Net operating Income 37000 4.1

Required: 1b Vulcan Company's Segment Income Statement For North Terriotry For the month Ended June 30 Product line Northern Territory Paks Tibs Amount % Amount % Amount Sales 400000 100.0 210000 100.0 190000 Less: Variable cost 168000 42.0 48300 23. 0 119700 Contribution 2320001 58.0 161700 77.0 70300 Traceable Fixed expenses 124500 31.11 90300 43.01 34200 Product line segment margin 1075001 26.9 71400 34.0 36100 Common fixed expenses 79500 19.90 Sales territory segment margin 28000 7.00 % 100.00 63.0 37.00 18.0 19.00