Question

Thanks so much for the help and your time!

Vulcan Company's contribution format income statement for June is as follows: Vulcan Company Income Statement For the Month Ended June 30 Sales $850,000 Variable expenses 320,000 Contribution margin 530,000 Fixed expenses 485,000 Net operating income $ 45,000 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 $500,000 in sales and $285,000 in variable expenses during June; the remaining sales and variable expenses were recorded in the Southern Territory. Fixed expenses of $185,000 and $94,500 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 $200,000 and $300,000. respectively, in the Northern territory during June. Variable expenses are 27% of the selling price for Paks and 77% for Tibs. Cost records show that $94.000 of the Northern Territory's fixed expenses are traceable to Paks and $60,000 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 1-b. Prepare contribution format segmented income statements for the Northern Territory broken down by product line.

Answer 1

1-a.
			Sales territory
	Total company		Northern		Southern
	Amount	%	Amount	%	Amount	%
Sales	850000	100.0%	500000	100.0%	350000	100.0%
Variable expenses	320000	37.6%	285000	57.0%	35000	10.0%
Contribution margin	530000	62.4%	215000	43.0%	315000	90.0%
Traceable fixed expenses	279500	32.9%	185000	37.0%	94500	27.0%
Territorial segment margin	250500	29.5%	30000	6.0%	220500	63.0%
Common fixed expenses ( 485000 - 279500 )	205500	24.2%
Net operating income	45000	5.3%

1-b.
			Product line
	Northern Territory		Paks		Tibs
	Amount	%	Amount	%	Amount	%
Sales	500000	100.0%	200000	100.0%	300000	100.0%
Variable expenses	285000	57.0%	54000	27.0%	231000	77.0%
Contribution margin	215000	43.0%	146000	73.0%	69000	23.0%
Traceable fixed expenses	154000	30.8%	94000	47.0%	60000	20.0%
Product line segment margin	61000	12.2%	52000	26.0%	9000	3.0%
Common fixed expenses ( 185000 - 154000 )	31000	6.2%
Sales territory segment margin	30000	6.0%