Question

Shoe Shock Innovations manufactures athletic shoe inserts that cushion the foot and reduce the impact of exercise on the joints. The company has two divisions, Sole Inserts and Heel Inserts. A segmented income statement from last month follows.

	Sole Inserts Division		Heel Inserts Division		Total Shoe Shock
Sales revenue	$493,900		$2,550,000		$3,043,900
Less variable expenses	318,000		2,048,000		2,366,000
Contribution margin	175,900		502,000		677,900
Less traceable fixed expenses	121,400		349,800		471,200
Segment margin	$54,500		$152,200		206,700
Common fixed costs					170,600
Net operating income					$36,100

Chris Kelly is Shoe Shock’s sales manager. Although this statement provides useful information, Chris wants to know how well the company’s two distribution channels, specialty footwear stores and drug stores, are performing. Marketing data indicates that 20% of sole inserts and 75% of heel inserts are sold through specialty footwear stores. A recent analysis of corporate fixed costs revealed that 50% of all fixed costs are traceable to specialty footwear stores and 45% of all fixed costs to drug stores.

Prepare a segment margin income statement for Shoe Shock’s two distribution channels. (If the amount is negative then enter with a negative sign preceding the number, e.g. -5,125 or parenthesis, e.g. (5,125).)

Answer 1

Solution :

Segmented Margin Income Statement :

Particulars	Speciality Footware Store	Drug Stores	Total
Sales	(493,900 * 0.20) + ($ 2,550,000 * 0.75) = $ 2,011,280	(493,900 * 0.80) + ($ 2,550,000 * 0.25) = $ 1,032,620	$ 3,043,900
Less : Variable Cost	(318,000 * 0.20) + ($ 2,048,000 * 0.75) = $ 1,599,600	(318,000 * 0.80) + ($ 2,048,000 * 0.25) = $ 766,400	$ 2,366,000
Contribution Margin	$ 411,680	$ 266,220	$ 677,900
Less : Traceable Fixed Cost	$ 641,800 * 0.50 = $ 320,900	$ 641,800 * 0.45 = $ 288,810	$ 609,710
Segment Margin	$ 90,780	($ 22,590)	$ 68,190
Less : Common Fixed Costs			$ 32,090
Net Operating Income			$ 36,100