Question

Millard Corporation is a wholesale distributor of office products. It purchases office products from manufacturers and distributes them in the West, Central, and East regions. Each of these regions is about the same size and each has its own manager and sales staff.

The company has been experiencing losses for many months. In an effort to improve performance, management has requested that the monthly income statement be segmented by sales region. The company’s first effort at preparing a segmented income statement for May is given below.

	Sales Region
	West				Central			East
Sales	$	311,000			$	802,000		$	699,000
Regional expenses (traceable):
Cost of goods sold		93,000				241,000			318,000
Advertising		105,000				241,000			238,000
Salaries		51,000				58,000			108,000
Utilities		8,600				15,600			14,000
Depreciation		21,000				30,000			25,000
Shipping expense		15,000				27,000			37,000
Total regional expenses		293,600				612,600			740,000
Regional income (loss) before corporate expenses		17,400				189,400			(41,000	)
Corporate expenses:
Advertising (general)		14,000				41,000			38,000
General administrative expense		19,000				19,000			19,000
Total corporate expenses		33,000				60,000			57,000
Net operating income (loss)	$	(15,600	)		$	129,400		$	(98,000	)

The cost of goods sold and shipping expense are both variable. All other costs are fixed.

Required:

3. Prepare a new contribution format segmented income statement for May. (Round percentage answers to 1 decimal place.)
Sales 100.0 100.0 100.0 100.0 Variable expenses: Cost of goods sold Shipping expense 0 0 0. 0 0 100. 0 0 0. 00 0 100. 0 0.0 100.0 0.0 100.0 Total variable expenses Contribution margin Traceable fixed expenses: Salaries Utilities Advertising Depreciation Total traceable fixed expenses 0 0 0 0 0 . 0 100.0 0 0. 100.0 0. 0 100.0 0.0 100.0 0 $ 0 $ 0 $ 0 Common fixed expenses: Advertising (general) General administration Total common fixed expense Net operating income (loss) 100.0

Answer 1

	Sales Region
	West		Central		East
	Amount	% to Sales	Amount	% to Sales	Amount	% to Sales
Sales	311000	100.0	802000	100.0	699000	100.0
Variable expenses:
Cost of goods sold	93000	30%	241000	30%	318000	45%
Shipping expense	15000	5%	27000	3%	37000	5%
Total variable expenses	108000	35%	268000	33%	355000	51%
Contribution margin	203000	65%	534000	67%	344000	49%
Traceable fixed expenses:
Salaries	51000	27%	58000	17%	108000	28%
Utilities	8600	5%	15600	5%	14000	4%
Advertising	105000	57%	241000	70%	238000	62%
Depreciation	21000	11%	30000	9%	25000	6%
Total traceable fixed expenses	185600	100%	344600	100%	385000	100%
	17400	6%	189400	24%	-41000	-6%
Common fixed expenses:
Advertising (general)	93000	62%
General administration	57000	38%
Total common fixed expense	150000	100%
Net operating income (loss)	$15,800	1%