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	$	313,000			$	795,000		$	703,000
Regional expenses (traceable):
Cost of goods sold		92,000				245,000			312,000
Advertising		108,000				238,000			236,000
Salaries		59,000				58,000			106,000
Utilities		8,500				15,800			14,100
Depreciation		25,000				31,000			26,000
Shipping expense		18,000				29,000			43,000
Total regional expenses		310,500				616,800			737,100
Regional income (loss) before corporate expenses		2,500				178,200			(34,100	)
Corporate expenses:
Advertising (general)		18,000				38,000			38,000
General administrative expense		20,000				20,000			20,000
Total corporate expenses		38,000				58,000			58,000
Net operating income (loss)	$	(35,500	)		$	120,200		$	(92,100	)

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.)

Total Company Amount % West Amount Central Amount East Amount % % % Sales Variable expenses: Cost of goods sold Advertising Salaries Utilities Total variable expenses | 0 0 . 0 0 0 0. 0 0. 0 0 0.0 0 0. 00 0. 00 0. 00 0.0 Traceable fixed expenses: Total traceable fixed expenses 0 0 0 0 0 . 0 0.0 $ 0. 0 0.0 $ 0. 0 0.0 $ 0.0 0.0 0 0 0 0 Common fixed expenses: Total common fixed expense Net operating income (loss) 0.0 0.0 $ 0

Answer 1

Contribution format Income Statement
	Total company		West		Central		East
	Amount	%	Amount	%	Amount	%	Amount	%
Sales	1,811,000	100.0%	313,000	100.0%	795,000	100.0%	703,000	100.0%
Variable expenses
Cost of goods sold	649,000	35.8%	92,000	29.4%	245,000	30.8%	312,000	44.4%
Utilities	38,400	2.1%	8,500	2.7%	15,800	2.0%	14,100	2.0%
Shipping Expense	90,000	5.0%	18,000	5.8%	29,000	3.6%	43,000	6.1%
Total Variable Expenses	777,400	42.9%	118,500	37.9%	289,800	36.5%	369,100	52.5%
Contribution Margin	1,033,600	57.1%	194,500	62.1%	505,200	63.5%	333,900	47.5%
Traceable Fixed Expenses
Advertising	582,000	32.1%	108,000	34.5%	238,000	29.9%	236,000	33.6%
Salaries	223,000	12.3%	59,000	18.8%	58,000	7.3%	106,000	15.1%
Depreciation	82,000	4.5%	25,000	8.0%	31,000	3.9%	26,000	3.7%
Total traceable fixed expenses	887,000	49.0%	192,000	61.3%	327,000	41.1%	368,000	52.3%
Segment Margin	146,600	8.1%	2,500	0.8%	178,200	22.4%	(34,100)	-4.9%
Common Fixed Expenses
Advertsing General	94,000	5.2%
General Admin Expense	60,000	3.3%
Total common fixed expense	154,000	8.5%
Net Operating Income	(7,400)	-0.4%