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 $ 40,000 Net operating income 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.

Answer 1

					Sales Territory
			total company		Northern		Southern
			Amount	%	Amount	%	Amount	%
Sales			800,000	100.0%	400,000	100.0%	400,000	100.0%
variable expenses			300,000	37.5%	208,000	52.0%	92,000	23.0%
contribution margin			500,000	62.5%	192,000	48.0%	308,000	77.0%
Traceable fixed expenses			260,000	32.5%	172,000	43.0%	88,000	22.0%
sales territory segment margin			240,000	30.0%	20,000	5.0%	220,000	55.0%
common fixed expense			200,000	25.0%
net operating income			40,000	5.0%
					Product line
			Northern territory		paks		Tibs
			Amount	%	Amount	%	Amount	%
Sales			400,000	100.0%	125,000	100.0%	275,000	100.0%
variable expenses			208,000	52.0%	37,500	30.0%	170,500	62.0%
contribution margin			192,000	48.0%	87,500	70.0%	104,500	38.0%
Traceable fixed expenses			135,500	33.9%	75,000	60.0%	60,500	22.0%
sales territory segment margin			56,500	14.1%	12,500	10.0%	44,000	16.0%
common fixed expense			36,500
net operating income			20,000