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		400,000
Contribution margin		500,000
Fixed expenses		450,000
Net operating income	$	50,000

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 $180,000 in variable expenses during June; the remaining sales and variable expenses were recorded in the Southern Territory. Fixed expenses of $200,000 and $115,000 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 $170,000 and $230,000, respectively, in the Northern territory during June. Variable expenses are 22% of the selling price for Paks and 62% for Tibs. Cost records show that $71,400 of the Northern Territory’s fixed expenses are traceable to Paks and $50,600 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.

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 $900,000 $400,000 $500,000 Variable expenses 400,000 Contribution margin 500,000 0.0 400,000 0.0 500,000 0.0 Traceable fixed expenses Territorial segment margin 500,000 0.0 $400,000 0.0 $500,000 0.0 Common fixed expenses Net operating income $500,000 0.0

		Product Line
	Northern Territory		Paks		Tibs
	Amount	%	Amount	%	Amount	%
Sales	not attempted	not attempted	not attempted	not attempted	not attempted	not attempted
Variable expensesselected answer correct	not attempted	not attempted	not attempted	not attempted	not attempted	not attempted
Contribution marginselected answer correct	0	0.0	0	0.0	0	0.0
Traceable fixed expensesselected answer correct	not attempted	not attempted	not attempted	not attempted	not attempted	not attempted
Product line segment marginselected answer correct	0	0.0	$0	0.0	$0	0.0
Common fixed expensesselected answer correct	not attempted	not attempted
Sales territory segment marginselected answer correct	$0	0.0

Answer 1

					Sales Territory
			total company		Northern		Southern
			Amount	%	Amount	%	Amount	%
Sales			900,000	100.0%	400,000	100.0%	500,000	100.0%
variable expenses			400,000	44.4%	180,000	45.0%	220,000	44.0%
contribution margin			500,000	55.6%	220,000	55.0%	280,000	56.0%
Traceable fixed expenses			315,000	35.0%	200,000	50.0%	115,000	23.0%
sales territory segment margin			185,000	20.6%	20,000	5.0%	165,000	33.0%
common fixed expense			135,000	15.0%
net operating income			50,000	5.6%
					Product line
			Northern territory		paks		Tibs
			Amount	%	Amount	%	Amount	%
Sales			400,000	100.0%	170,000	100.0%	230,000	100.0%
variable expenses			180,000	45.0%	37,400	22.0%	142,600	62.0%
contribution margin			220,000	55.0%	132,600	78.0%	87,400	38.0%
Traceable fixed expenses			122,000	30.5%	71,400	42.0%	50,600	22.0%
sales territory segment margin			98,000	24.5%	61,200	36.0%	36,800	16.0%
common fixed expense			78,000
net operating income			20,000