Question

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		408,000
Contribution margin		492,000
Fixed expenses		455,000
Net operating income	$	37,000

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:

1. The company is divided into two sales territories—Northern and Southern. The Northern Territory recorded $400,000 in sales and $168,000 in variable expenses during June; the remaining sales and variable expenses were recorded in the Southern Territory. Fixed expenses of $204,000 and $120,000 are traceable to the Northern and Southern Territories, respectively. The rest of the fixed expenses are common to the two territories.

2. The company is the exclusive distributor for two products—Paks and Tibs. Sales of Paks and Tibs totaled $210,000 and $190,000, respectively, in the Northern territory during June. Variable expenses are 23% of the selling price for Paks and 63% for Tibs. Cost records show that $90,300 of the Northern Territory’s fixed expenses are traceable to Paks and $34,200 to Tibs, with the remainder common to the two products.

Required:

1a-Prepare contribution format segmented income statements for the total company broken down between sales territories. (Round your percentage answers to 1 decimal place (i.e. 0.1234 should be entered as 12.3).)

	Sales Territory Total Company Northern Southern Amount % Amount % Amount % Sales Variable expenses Contribution margin Traceable fixed expenses Territorial segment margin Common fixed expenses Net operating income

1b-Prepare contribution format segmented income statements for the Northern Territory broken down by product line. (Round your percentage answers to 1 decimal place (i.e. 0.1234 should be entered as 12.3).)

	Product Line Northern Territory Paks Tibs Amount % Amount % Amount % Sales Variable expenses Contribution margin 0 0.0 0 0.0 0 0.0 Traceable fixed expenses Product line segment margin 0 0.0 $0 0.0 $0 0.0 Common fixed expenses Sales territory segment margin $0 0.0

Answer 1

Answer

-- 1 [a]

	Total Company		Northern		Southern
	Amount	%	Amount	%	Amount	%
Sales	$900,000	100.0%	$400,000	100.0%	$500,000	100.0%
Variable expenses	$408,000	45.3%	$168,000	42.0%	$240,000	48.0%
Contribution margin	$492,000	54.7%	$232,000	58.0%	$260,000	52.0%
Traceable fixed expenses	$324,000	36.0%	$204,000	51.0%	$120,000	24.0%
Territorial segment margin	$168,000	18.7%	$28,000	7.0%	$140,000	28.0%
Common fixed expenses	$131,000	14.6%
Net operating income	$37,000	4.1%

-- 1 [b]

	Northern Territory		Paks		Tibs
	Amount	%	Amount	%	Amount	%
Sales	$400,000	100.0%	$210,000	100.0%	$190,000	100.0%
Variable expenses	$168,000	42.0%	$48,300	23.0%	$119,700	63.0%
Contribution margin	$232,000	58.0%	$161,700	77.0%	$70,300	37.0%
Traceable fixed expenses	$124,500	31.1%	$90,300	43.0%	$34,200	18.0%
Product line segment margin	$107,500	26.9%	$71,400	34.0%	$36,100	19.0%
Common fixed expenses	$79,500	19.9%
Sales territory segment margin	$28,000	7.0%