Question

7. Shannon Company segments its income statement into its North and South Divisions. The company’s overall sales, contribution margin ratio, and net operating income are $480,000, 36%, and $9,600, respectively. The North Division’s contribution margin and contribution margin ratio are $92,000 and 40%, respectively. The South Division’s segment margin is $32,500. The company has $62,400 of common fixed expenses that cannot be traced to either division.

Required: Prepare an income statement for Shannon Company that uses the contribution format and is segmented by divisions. In addition, for the company as a whole and for each segment, show each item on the segmented income statements as a percent of sales. (Round your percentage answers to 1 decimal place (i.e .1234 should be entered as 12.3).

Answer 1

Answer

• Requirement as asked

	Total company		North		South
	Amount	%	Amount	%	Amount	%
Sales	$480,000	100.0%	$230,000	100.0%	$250,000	100.0%
Variable expenses	$307,200	64.0%	$138,000	60.0%	$169,200	67.7%
Contribution margin	$172,800	36.0%	$92,000	40.0%	$80,800	32.3%
Traceable Fixed expenses	$100,800	21.0%	$52,500	22.8%	$48,300	19.3%
Territorial segment margin	$72,000	15.0%	$39,500	17.2%	$32,500	13.0%
Common Fixed expenses	$62,400
Net Operating Income	$9,600

--Working

	Total company	North	South
	Amount	Amount	Amount	%
Sales	480000	=92000/40%	=480000-230000	=+G37666/$G$37666
Variable expenses	=480000-172800	=230000-92000	=307200-138000	=+G37667/$G$37666
Contribution margin	=480000*36%	92000	=172800-92000	=+G37668/$G$37666
Traceable Fixed expenses	=172800-72000	=92000-39500	=100800-52500	=+G37669/$G$37666
Territorial segment margin	=62400+9600	=72000-32500	32500	=+G37670/$G$37666
Common Fixed expenses	62400
Net Operating Income	9600