Question

Vulcan Company's contribution format income statement for June is as follows: Vulcan Company Income Statement For the Month Ended June 30 Sales Variable expenses Contribution margin Fixed expenses 800,000 300,000 500,000 460,000 Net operating income $ 40,000 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: a. The company is divided into two sales territories-Northern and Southern. The Northern Territory recorded $400,000 in sales and $208,000 in variable expenses during June; the remaining sales and variable expenses were recorded in the Southern Territory. Fixed expenses of $172,000 and $88,000 are traceable to the Northern and Southern Territories, respectively. The rest of the fixed expenses are common to the two territories. b. The company is the exclusive distributor for two products-Paks and Tibs. Sales of Paks and Tibs totaled $125,000 and $275,000, respectively, in the Northern territory during June. Variable expenses are 30 % of the selling price for Paks and 62% for Tibs. Cost records show that $75,000 of the Northern Territory's fixed expenses are traceable to Paks and $60,500 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. Prev 3 of 4 Next >

Answer 1

Answer:

1-a
		Vulcan company		Northern		Southern
Particulars	Calculation	%	Amount($)	%	Amount($)	%	Amount($)
Sales	A	100.00%	8,00,000	100.00%	4,00,000	100.00%	4,00,000
Variable expenses	B	37.50%	3,00,000	52.00%	2,08,000	23.00%	92,000
Contribution margin	C=A-B	62.50%	5,00,000	48.00%	1,92,000	77.00%	3,08,000
Traceable fixed expenses	D	32.50%	2,60,000	43.00%	1,72,000	22.00%	88,000
Territorial segment margin	E=C-D	30.00%	2,40,000	5.00%	20,000	55.00%	2,20,000
Common fixed expenses	F	25.00%	2,00,000
Net operating income	G=E-F	5.00%	40,000
b		Northern Territory		Pak s		Tibs
Particulars	Calculation	%	Amount($)	%	Amount($)	%	Amount($)
Sales	A	100.00%	4,00,000	100.00%	1,25,000	100.00%	2,75,000
Variable expenses	B	52.00%	2,08,000	30.00%	37,500	62.00%	1,70,500
Contribution margin	C=A-B	48.00%	1,92,000	70.00%	87,500	38.00%	1,04,500
Traceable fixed expenses	D	33.90%	1,35,500	60.00%	75,000	22.00%	60,500
Product line segment margin	E=C-D	14.10%	56,500	10.00%	12,500	16.00%	44,000
Common fixed expenses	F	9.10%	36,500
Sales territory segment margin	G=E-F	5.00%	20,000