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		470,000
Net operating income	$	30,000

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 $200,000 in variable expenses during June; the remaining sales and variable expenses were recorded in the Southern Territory. Fixed expenses of $172,000 and $135,000 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 $200,000 and $200,000, respectively, in the Northern territory during June. Variable expenses are 26% of the selling price for Paks and 74% for Tibs. Cost records show that $94,000 of the Northern Territory’s fixed expenses are traceable to Paks and $42,000 to Tibs, with the remainder common to the two products.

Required:

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

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

Answer 1

Required: 1a Vulcan Company's Segment Income Statement For the Total Company For the month Ended June 30 Sales Territory Total Company Amount Northern Southern Amount Amount % Sales Less: Variable cost Contribution Traceable Fixed expenses Territory Segment margin 100.0 100.0 900000 400000 100.0 500000 50.0 400000 200000 200000 40.0 44.4 500000 55.6 200000 50.0 300000 60.0 135000 307000 34.1 172000 43.0 27.0 193000 21.4 33.0 28000 7.0 165000 Common fixed expenses 18.1 163000 Net operating Income 30000 3.3

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 100.0 400000 100.0 200000 100.0 200000 Less: Variable cost 74.0 200000 50.0 52000 26.0 148000 50.0 Contribution 200000 148000 74.0 52000 26.0 Traceable Fixed expenses 42000 34.0 136000 94000 47.0 21.0 Product line segment margin 64000 16.0 54000 27.0 10000 5.0 Common fixed expenses 36000 9.0 Saless territory segment margin 28000 7.0