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 Net operating income 850,000 308,000 542,000 490,000 $ 52,000 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 $152,000 and $126,000 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 $180,000 and $220,000, respectively, in the Northern territory during June. Variable expenses are 28% of the selling price for Paks and 68% for Tibs. Cost records show that $86,400 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 territories 1-b. Prepare contribution format segmented income statements for the Northern Territory broken down by product line

Answer 1

SOLUTION

1a.

	Total Company	Total Company	Northern	Northern	Southern	Southern
	Amount ($)	%	Amount ($)	%	Amount ($)	%
Sales	850,000	100	400,000	100	450,000	100
Variable expenses	308,000	36.24	200,000	50	108,000	24
Contribution margin	542,000	63.76	200,000	50	342,000	76
Traceable fixed expenses	278,000	32.70	152,000	38	126,000	28
Territorial segment margin	264,000	31.06	48,000	12	216,000	48
Common fixed expenses	212,000	24.94
Net operating income	52,000	6.12

1b.

	Northern Territory	Northern Territory	Paks	Paks	Tibs	Tibs
	Amount ($)	%	Amount ($)	%	Amount ($)	%
Sales	400,000	100	180,000	100	220,000	100
Variable expenses	200,000	50	50,400	28	149,600	68
Contribution margin	200,000	50	129,600	72	70,400	32
Traceable fixed expenses	132,600	33.15	86,400	48	46,200	21
Product line segment margin	67,400	16.85	43,200	24	24,200	11
Common fixed expenses	19,400	4.85
Sales territory segment margin	48,000	12