Question

Vulcan Company's contribution format income statement for June is as follows: Vulcan Company Income Statement For the Month Ended June 30 Sales Variable expenses Contribution margin Fixed expenses $ 800,000 300,000 500,000 460,000 $ 40,000 Net operating income 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 $208,000 in variable expenses during June; the remaining sales and variable expenses were recorded in the Southern Territory. Fixed expenses of $172,000 and $88,000 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 $125,000 and $275,000, respectively, in the Northern territory during June. Variable expenses are 30% of the selling price for Paks and 62% for Tibs. Cost records show that $75,000 of the Northern Territory's fixed expenses are traceable to Paks and $60,500 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 Northern Southern Amount % Amount % Amount Sales 800000 100.0 400000 100.0 400000 Less : Variable cost 300000 37.51 208000 52.01 92000 Contribution 5000001 62.5 192000 48.0 308000 Traceable Fixed expenses 2600001 32.5 172000 43.01 88000 Territory Segment margin 240000 30.0 20000 5.0 220000 Common fixed expenses 200000 25.0 Net operating Income 40000 5.0 23.0 77.00 22.0 55.0

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 1250000 100.0 275000 Less: Variable cost 208000 52.0 375000 30.0 170500 Contribution 1920001 48.0 8750001 70.0 104500 Traceable Fixed expenses 135500 33.9 75000 6.01 60500 Product line segment margin 56500 14.1 8000001 64.00 44000 Common fixed expenses 36500 9.1 Sales territory segment margin 20000 % 100.0 62.0 38.00 22.0 16.0 5.0