Question

Vulcan Company’s contribution format income statement for June is as follows: Vulcan Company Income Statement For...

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 300,000
Contribution margin 600,000
Fixed expenses 495,000
Net operating income $ 105,000

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 $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 $156,000 and $145,000 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 $190,000 and $210,000, respectively, in the Northern territory during June. Variable expenses are 29% of the selling price for Paks and 69% for Tibs. Cost records show that $93,100 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:

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.

Homework Answers

Answer #1

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 $900000 100 $400000 100 $500000 100
Variable expenses $300000 33.3 $200000 50 $100000 20
Contribution margin $600000 66.7 $200000 50 $400000 80
Traceable fixed expenses $301000 33.4 $156000 39 $145000 29
Territorial segment margin $299000 33.2 $44000 11 $255000 51
Common fixed expenses $194000 21.6
Net operating income $105000 11.7

1-b. Prepare contribution format segmented income statements for the Northern Territory broken down by product line.

Product Line
Total Company Northern Southern
Amount % Amount % Amount %
Sales $400000 100 $190000 100 $210000 100
Variable expenses $200000 50 $55100 29 $144900 69
Contribution margin $200000 50 $134900 71 $65100 31
Traceable fixed expenses $139300 34.8 $93100 49 $46200 22
Product Line segment margin $60700 15.2 $41800 22 $18900 9
Common fixed expenses $16700 4.2
Sales territory segment margin $44000 11
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