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:

1. 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 variable 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.

2. 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:

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.

• Req 1A

Prepare contribution format segmented income statements for the total company broken down between sales territories. (Round the percentage answers to one decimal place (i.e .1234 should be entered as 12.3).)

	Sales Territory Total Company Northern Southern Amount % Amount % Amount %

• Req 1B

Prepare contribution format segmented income statements for the Northern Territory broken down by product line. (Round the percentage answers to one decimal place (i.e .1234 should be entered as 12.3).)

	Product Line Northern Territory Paks Tibs Amount % Amount % Amount %

Answer 1

Total Sales = Northen sales + Sothern Sales

900,000 = 400,000 +500,000

Sothern Varaible cost = Total Variable cost - Northen Variable cost = 500000-160000= 340000

Traceable Fixed cost: 334,000 , Northen 184000 Sothern 150,000

Common Fixed Cost =485,000 -334,000 =151,000

Variable cost of Paks = 290,000 * 0.29 = 84,100

Varaible cost of Tibs = 110,000 *0.69 =75,900