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		465,000
Net operating income	$	27,000

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:

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 $212,000 and $130,000 are traceable to the Northern and Southern Territories, respectively. The rest of the fixed expenses are common to the two territories.

The company is the exclusive distributor for two products—Paks and Tibs. Sales of Paks and Tibs totaled $200,000 and $200,000, respectively, in the Northern territory during June. Variable expenses are 25% of the selling price for Paks and 59% for Tibs. Cost records show that $90,000 of the Northern Territory’s fixed expenses are traceable to Paks and $40,000 to Tibs, with the remainder common to the two products.

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.

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).)

	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

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).)

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

Answer 1

Sales for the southern territory = 900,000 - 400,000 = $500,000

Common fixed expenses = 465,000 - 342,000 = $123,000

Sales Territory Total Company Northern Southern Amount % Amount Amount Sales 900,000 400,000 | 44.4 500,000 55.5 58.8 Variable expenses 408,000 168,000 41.2 240,000 Contribution margin 492,000 232,000 260,000 52.8 38.1 Traceable fixed expenses 342,000 100 47.2 61.9 13.3 212,000 130,000 Territorial segment margin 150,000 100 20,000 130,000 86.7 Common fixed expenses 123,000 Net operating income 27,000

Common fixed expenses = 342,000 - 130,000 = $212,000

TOTAL Product Line Northern Territory Paks Tibs Amount % Amount % Amount % Sales 400.000 200,000 50 200,000 50 Variable expenses 168,000 50,000 29.8 118,000 70.2 Contribution margin 232,000 100 150,000 64.6 82,000 35.4 Traceable fixed expenses 130,000 100 90,000 69.2 40,000 30.8 Product line segment margin 1000 60,000 58.8 42,000 41.2 102.000 212.000 Common fixed expenses Sales territory segment margin (110,000)