Question

Vulcan Company's contribution format income statement for June is as follows: Vulcan Company Income Statement For the Month Ended June 30 Sales $ 800,000 Variable expenses 308,000 Contribution margin 492,000 Fixed expenses 480,000 Net operating income $ 12,000 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 $224.000 in variable expenses during June; the remaining sales and variable expenses were recorded in the Southern Territory. Fixed expenses of $160,000 and $104,000 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 $100,000 and $300,000, respectively, in the Northern territory during June. Variable expenses are 26% of the selling price for Paks and 66% for Tibs. Cost records show that $46,000 of the Northern Territory's fixed expenses are traceable to Paks and $78,000 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

Answer with working is given below

1a) Sales Territory Total Company Northern Southern Amount Amount Amount $800,000 100.0% $400,000 38.5% $224,000 61.5% $176,000 33.0% $160,000 100.0% $400,000 $84,000 44.0% $316,000 40.0% $104,000 4.0% $212,000 Sales 100.0% Variable expenses $308,000 $492,000 56.0% 21.0% 79.0% Contribution Allocated Fixed cost Segment Margin Common Fixed expense $264,000 26.0% $228,000 $16,000 53.0% 28.5% $216,000 27.0% $12,000| Net Operating margin 1.5% Working note for Common Fixed expense Total Fixed Cost Less: Allocated Fixed cost Northern Territory Southern Territory Common fixed expense $480,000 $160,000 $104,000 $216,000 1b) Product Line Northern Territory Paks Tibs Amount Amount Amount $400,000 100.0% $100,000 $26,000 $74,000 100.0% $300,000 26.0% $198,000 74.0% $102,000 $78,000 $24,000 Sales 100.0% Variable expenses $224,000 56.0% 66.0% $176,000 $124,000 Contribution 44.0% 34.0% Allocated Fixed cost Product Margin Common Fixed expense Net Operating margin $46,000 31.0% 46.0% 26.0% $52,000 13.0% $28,000 8.0% 28.0% $36,000 9.0% $16,000 4.0% Working note: Variable expenses Paks= 26% of Selling price - 26% of $100,000 = $26,000 Tibs= 66% of Selling price - 66% of $ 300,000 = $198,000 Total Fixed Cost $160,000 Less: Allocated Fixed cost $46,000 $78,000 Paks Tibs Common fixed expense $36,000