Question

Vulcan Company’s contribution format income statement for June is given below:

  

Vulcan Company Income Statement For the Month Ended June 30
Sales	$	750,000
Variable expenses		336,000
Contribution margin		414,000
Fixed expenses		378,000
Net operating income	$	36,000

  

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 $300,000 in sales and $156,000 in variable expenses during June; the remaining sales and variable expenses were recorded in the Southern territory. Fixed expenses of $120,000 and $108,000 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 $50,000 and $250,000, respectively, in the Northern territory during June. Variable expenses are 22% of the selling price for Paks and 58% for Tibs. Cost records show that $30,000 of the Northern territory’s fixed expenses are traceable to Paks and $40,000 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. (Round the percentage answers to one decimal place (i.e .1234 should be entered as 12.3).)

      

1-b.	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).)

      

Answer 1

1a) Segmented income Statement for the Total Company Sales Territory Total Company Northren South Amount % Amount % Amount % Sales 750000 100.0% 300000 100.0% 450000 100.0% Variabel Expenses 336000 44.8% 156000 52.0% 180000 40.0% Contribution Margin 414000 55.2% 144000 48.0% 270000 60.0% Traceable Fixed Expenses 228000 30.4% 120000 40.0% 108000 24.0% Territory segment Margin 186000 24.8% 24000 8.0% 162000 36.0% Common Fixed Cost 150000 20.0% Net operating Income 36000 4.8% 1b) Segmented income Statement for the Northren Territory Product Lines Northern Territory Paks Tibs Amount % Amount. % Amount | % Sale 300000 100.0% 50000 100.0% 250000 100.0% Variabel Expenses 156000 52.0% 11000 22.0% 145000 58.0% Contribution Margin 144000 48.0% 39000 78.0% 105000 42.0% Traceable Fixed Expenses 70000 23.3% 30000 60.0% 40000 16.0% Product line Segment Margin 74000 24.7% 9000 18.0% 65000 26.0% common Fixed Cost 50000 16.7% Net operating Income 24000 8.0%