Question

Shannon Company segments its income statement into its North and South Divisions. The company’s overall sales, contribution margin ratio, and net operating income are $380,000, 34%, and $7,600, respectively. The North Division’s contribution margin and contribution margin ratio are $83,600 and 38%, respectively. The South Division’s segment margin is $19,200. The company has $45,600 of common fixed expenses that cannot be traced to either division.

Prepare an income statement for Shannon Company that uses the contribution format and is segmented by divisions. In addition, for the company as a whole and for each segment, show each item on the segmented income statements as a percent of sales.

Answer 1

Prepare an income statement for Shannon Company that uses the contribution format and is segmented by divisions.

	Total company		North division		South division
	Amount	Percent	Amount	Perent	amount	Percent
Sales	380000	100%	220000	100%	160000	100%
Variable cost	250800	66%	136400	62%	114400	71.5%
Contribution margin	129200	34%	83600	38%	45600	28.5%
Traceable fixed expense	76000	20%	49600	22.5%	26400	16.5%
Segment margin	53200	14%	34000	15.5%	19200	12%
Common fixed expense	45600
Net operating income	7600