Question

Problem 7-21 Segment Reporting and Decision-Making [LO7-4]

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 your percentage answers to 1 decimal place (i.e. 0.1234 should be entered as 12.3).)

	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 Territorial segment margin 185,000 55.6 $220,000 55.0 $280,000 56.0 Common fixed expenses Net operating income $185,000 55.6

Prepare contribution format segmented income statements for the Northern Territory broken down by product line. (Round your percentage answers to 1 decimal place (i.e. 0.1234 should be entered as 12.3).)

	Product Line Northern Territory Paks Tibs Amount % Amount % Amount % Sales $400,000 100.0 100.0 100.0 Variable expenses 180,000 45.0 Contribution margin 220,000 55.0 0 100.0 0 100.0 Traceable fixed expenses Product line segment margin 220,000 55.0 $0 100.0 $0 100.0 Common fixed expenses Sales territory segment margin $220,000 55.0

Answer 1

Required: 1a Vulcan Company's Segment Income Statement For the Total Company For the month Ended June 30 Sales Territory Total Company Northern Southern Amount % Amount % Amount % Sales 900000 100.0 400000 100.0 500000 100.0 Less: Variable cost 400000 44.41 180000 45.01 220000 44.0 Contribution 5000001 55.6 220000 55.0 280000 56.0 Traceable Fixed expenses 315000 35.0 200000 50.0 115000 23.01 Territory Segment margin 185000 20.6 20000 5.0 165000 33.0 Common fixed expenses 135000 15.0 Net operating Income 50000 5.6

Required: 1b Vulcan Company's Segment Income Statement For North Terriotry For the month Ended June 30 Product line Northern Territory Paks Tibs Amount % Amount % Amount Sales 400000 100.0 170000 100.0 230000 Less: Variable cost 180000 45.00 37400 22.01 142600 Contribution 220000 55.0 132600 78.0 87400 Traceable Fixed expenses 122000 30.5 71400 42.0 50600 Product line segment margin 98000 24.51 61200 36.0 36800| Common fixed expenses 78000 19.5 Sales territory segment margin 20000 5.0 % 100.0 62.01 38.00 22.01 16.00