Question

Problem 6-21 Segment Reporting and Decision-Making [LO6-4] 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 475,000 Net operating income $ 25,000 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: The company is divided into two sales territories—Northern and Southern. The Northern Territory recorded $400,000 in sales and $160,000 in variable expenses during June; the remaining sales and variable expenses were recorded in the Southern Territory. Fixed expenses of $176,000 and $140,000 are traceable to the Northern and Southern Territories, respectively. The rest of the fixed expenses are common to the two territories. The company is the exclusive distributor for two products—Paks and Tibs. Sales of Paks and Tibs totaled $140,000 and $260,000, respectively, in the Northern territory during June. Variable expenses are 27% of the selling price for Paks and 47% for Tibs. Cost records show that $67,200 of the Northern Territory’s fixed expenses are traceable to Paks and $57,200 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

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 44.4 160000 40.01 240000 48.00 Contribution 5000001 55.6 240000 60.00 260000 52.01 Traceable Fixed expenses 316000 35.1 176000 44.0 140000 28.0 Territory Segment margin 184000 20.41 640001 16.0 120000 Common fixed expenses 159000 17.7 Net operating Income 25000 200 2.8

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 400000 100.0 140000 100.0 260000 Less: Variable cost 160000 40.0 37800 27.01 1222001 Contribution 240000 60.0 102200 73.0 137800 Traceable Fixed expenses 124400 31.11 672001 48.0 57200 Product line segment margin 115600 28.9 350001 25.0 80600 Common fixed expenses 51600 12.9 Sales territory segment margin 64000 16.0 % 100.0 47.00 53.0 22.0 31.0