Question

Problem 6-21A Segment Reporting and Decision Making [LO6-4]

Vulcan Company’s contribution format income statement for June is given below:

  

Vulcan Company Income Statement For the Month Ended June 30
Sales	$	850,000
Variable expenses		308,000
Contribution margin		542,000
Fixed expenses		490,000
Net operating income	$	52,000

  

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 $200,000 in variable expenses during June; the remaining sales and variable expenses were recorded in the Southern Territory. Fixed expenses of $152,000 and $126,000 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 $180,000 and $220,000, respectively, in the Northern territory during June. Variable expenses are 28% of the selling price for Paks and 68% for Tibs. Cost records show that $86,400 of the Northern Territory’s fixed expenses are traceable to Paks and $46,200 to Tibs, with the remainder common to the two products.

  

Required:

1a.	Prepare contribution format segmented income statements for the total company broken down between sales territories. (Round the percentage answers to one decimal place (i.e .1234 should be entered as 12.3))

       

1b.	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))

      

Problem 6-21A Segment Reporting and Decision Making [LO6-4] Vulcan Company’s contribution format income statement for June is given below: Vulcan Company Income Statement For the Month Ended June 30 Sales $ 850,000 Variable expenses 308,000 Contribution margin 542,000 Fixed expenses 490,000 Net operating income $ 52,000 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 $200,000 in variable expenses during June; the remaining sales and variable expenses were recorded in the Southern Territory. Fixed expenses of $152,000 and $126,000 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 $180,000 and $220,000, respectively, in the Northern territory during June. Variable expenses are 28% of the selling price for Paks and 68% for Tibs. Cost records show that $86,400 of the Northern Territory’s fixed expenses are traceable to Paks and $46,200 to Tibs, with the remainder common to the two products. Required: 1a. Prepare contribution format segmented income statements for the total company broken down between sales territories. (Round the percentage answers to one decimal place (i.e .1234 should be entered as 12.3)) 1b. 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))

Answer 1

SEGMENT-WISE INCOME STATEMENT
				TOTAL	Northern	Southern
				AMOUNT $	AMOUNT $	AMOUNT $
Sales Revenue				850,000	400,000	450,000
Less: Variable cost				308,000	200,000	108,000
Contribution margin				542,000	200,000	342,000
Less: Traceable Expense				278,000	152,000	126,000
SEGMENT MARGIN				264,000	48,000	216,000
Less: Common Fixed expesne				212,000
Net Operating Income				52,000
Req b:
SEGMENT-WISE INCOME STATEMENT
				TOTAL	Pak	Tibs
				AMOUNT $	AMOUNT $	AMOUNT $
Sales Revenue				400,000	180,000	220,000
Less: Variable cost				200,000	50,400	149,600
Contribution margin				200,000	129,600	70,400
Less: Traceable Expense				132,600	86,400	46,200
SEGMENT MARGIN				67,400	43,200	24,200
Less: Common Fixed expesne				19,400
Net Operating Income				48,000