Question

Problem 6-21 Segment Reporting and Decision-Making (LO6-4] 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 300,000 Contribution margin 600,000 Fixed expenses 495,000 Net operating income $ 105,000 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 $200,000 in variable expenses during June; the remaining sales and variable expenses were recorded in the Southern Territory. Fixed expenses of $156,000 and $145,000 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 $190,000 and $210,000, 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 $93,100 of the Northern Territory's fixed expenses are traceable to Paks and $46,200 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

Answer 1

1.a Contribution format segmented income statements for the total company broken down between sales territories:

				Sales Territory
	Total Company			Northern			Southern
	Amount ($)	% to Sales	Explanation to amount mentioned in Total company	Amount ($)	% to Sales	Explanation to amount mentioned in Northern Territory	Amount ($)	% to Sales	Explanation to amount mentioned in Southern Territory
Sales	900,000	100%	As given	400,000	100%	As given	500,000	100%	Total Company Sales less Northern Territory Sales
Variable Expense	300,000	33%	As given	200,000	50%	As given	100,000	20%	Total Company Variable Expense less Northern Territory Exp
Contribution Margin	600,000	67%	Sales less Variable Expense	200,000	50%	Sales less Variable Expense	400,000	80%	Sales less Variable Expense
Fixed Expense allocated to territory	301,000	33%	Sum of Northern + southern territory fixed expense	156,000	39%	As given	145,000	29%	As given
Net Operating Income apportioned to each territory	299,000	33%	Contribution Margin less fixed expense	44,000	11%	Contribution Margin less fixed expense	255,000	51%	Contribution Margin less fixed expense
Fixed Expense not allocated to any territory	194,000	22%	Total fixed expense of $ 495000 less fixed expense of both territories of $ 301000
Total Net Operating Income	105,000	12%

1.b Contribution format segmented income statements for the Northern Territory broken down by product line:

				Product Line
	Northern Territory			Paks			Tibs
	Amount ($)	% to sales	Explanation to amount mentioned in Northern Territory	Amount ($)	% to sales	Explanation to amount mentioned in Paks	Amount ($)	% to sales	Explanation to amount mentioned in Tibs
Sales	400,000	100%	Sum of Sales of Paks + Tibs	190,000	100%	As given	210,000	100%	As given
Variable Expense	200,000	50%	Sum of Sales of Paks + Tibs	55,100	29%	As given - 29% of sales	144,900	69%	As given-69% of sales
Contribution Margin	200,000	50%	Sales less Variable Expense	134,900	71%	Sales less Variable Expense	65,100	31%	Sales less Variable Expense
Fixed Expense allocated to Product Line	139,300	35%	Sum of Paks + Tibs fixed expense	93,100	49%	As given	46,200	22%	As given
Net Operating Income apportioned to each Product Line	60,700	15%	Contribution Margin less fixed expense	41,800	22%	Contribution Margin less fixed expense	18,900	9%	Contribution Margin less fixed expense
Fixed Expense not allocated to any Product Line	16,700	4%	Total fixed expense of $ 156000 less fixed expense of both Product line of $ 139300
Total Net Operating Income	44,000	11%