Question

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 $500,000 in sales and $200,000 in variable expenses during June; the remaining sales and variable expenses were recorded in the Southern Territory. Fixed expenses of $245,000 and $88,000 are traceable to the Northern and Southern Territories, respectively. The rest of the fixed expenses are common to the two territories.

2. The company is the exclusive distributor for two products—Paks and Tibs. Sales of Paks and Tibs totaled $250,000 and $250,000, respectively, in the Northern territory during June. Variable expenses are 21% of the selling price for Paks and 59% for Tibs. Cost records show that $102,500 of the Northern Territory’s fixed expenses are traceable to Paks and $52,500 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.

			Sales Territory
	Total Company		Northern		Southern
	Amount	%	Amount	%	Amount	%
Sales	$500,000		$400,000		$900,000
Variable expenses	200,000		200,000		400,000
Contribution margin	300,000	0.0	200,000	0.0	500,000	0.0
Traceable fixed expenses	245,000		88,000		33,000
Territorial segment margin	55,000	0.0	$112,000	0.0	$467,000	0.0
Common fixed expenses	117,000
Net operating income	$(62,000)	0.0

1-b. Prepare contribution format segmented income statements for the Northern Territory broken down by product line. (Round the percentage answers to one decimal place (i.e .1234 should be entered as 12.3).)

			Product Line
	Northern Territory		Paks		Tibs
	Amount	%	Amount	%	Amount	%
	0	0.0	0	0.0	0	0.0
	0	0.0	$0	0.0	$0	0.0
	$0	0.0

Answer 1