Question

Segmented Income Statement

Gorman Nurseries Inc. grows poinsettias and fruit trees in a green house/nursery operation. The following information was provided for the coming year.

	Poinsettias	Fruit Trees
Sales	$970,000	$3,100,000
Variable cost of goods sold	460,000	1,630,000
Direct fixed overhead	160,000	200,000

A sales commission of 4% of sales is paid for each of the two product lines. Direct fixed selling and administrative expense was estimated to be $146,000 for the poinsettia line and $87,000 for the fruit tree line.

Common fixed overhead for the nursery operation was estimated to be $800,000; common selling and administrative expense was estimated to be $450,000.

Required:

Prepare a segmented income statement for Gorman Nurseries for the coming year, using variable costing.

Note: Enter all amounts as positive numbers except operating loss, if applicable.

Gorman Nurseries Inc.
Segmented Income Statement
For the Coming Year
	Poinsettias	Fruit Trees	Total
	$	$	$
Less variable expenses:
Contribution margin	$	$	$
Less direct fixed expenses:
Segment margin	$	$	$
Less common fixed expenses:
			$

Answer 1

Solution:

Segmented Income Statement

	Poinsettias	Fruit Trees	Total
Sales	970,000	3,100,000	4,070,000
Variable cost of goods sold	-460,000	-1,630,000	-2,090,000
Variable selling expense	-38,800	-124,000	-162,800
Contribution margin	471,200	1,346,000	1,817,200
Less direct fixed expenses
Direct fixed overhead	-160,000	-200,000	-360,000
Segment margin	-146,000	-87,000	-233,000
Less common fixed expenses	165,200	1,059,000	1,224,200
Common fixed overhead			-800,000
Common selling and administrative			-450,000
Operating income			-25,800