Question

Problem 7-26 Restructuring a Segmented Income Statement [LO7-4]

Millard Corporation is a wholesale distributor of office products. It purchases office products from manufacturers and distributes them in the West, Central, and East regions. Each of these regions is about the same size and each has its own manager and sales staff.

The company has been experiencing losses for many months. In an effort to improve performance, management has requested that the monthly income statement be segmented by sales region. The company’s first effort at preparing a segmented income statement for May is given below.

	Sales Region
	West				Central			East
Sales	$	311,000			$	805,000		$	705,000
Regional expenses (traceable):
Cost of goods sold		94,000				244,000			312,000
Advertising		104,000				236,000			242,000
Salaries		58,000				54,000			107,000
Utilities		9,500				15,800			13,900
Depreciation		19,000				34,000			28,000
Shipping expense		16,000				32,000			41,000
Total regional expenses		300,500				615,800			743,900
Regional income (loss) before corporate expenses		10,500				189,200			(38,900	)
Corporate expenses:
Advertising (general)		15,000				43,000			34,000
General administrative expense		18,000				18,000			18,000
Total corporate expenses		33,000				61,000			52,000
Net operating income (loss)	$	(22,500	)		$	128,200		$	(90,900	)

The cost of goods sold and shipping expense are both variable. All other costs are fixed.

(total company, west, central, east)

Amount & (%) for each

Required:

3. Prepare a new contribution format segmented income statement for May. (Round percentage answers to 1 decimal place.)

Answer 1

	Total Company		West		Central		East
	Amount	%	Amount	%	Amount	%	Amount	%
Sales	1,821,000	100.0%	311,000	100.0%	805,000	100.0%	705,000	100.0%
Variable expenses
Cost of goods sold	650,000	35.7%	94,000	30.2%	244,000	30.3%	312,000	44.3%
Shipping expense	89,000	4.9%	16,000	5.1%	32,000	4.0%	41,000	5.8%
Total Variable costs	739,000	40.6%	110,000	35.4%	276,000	34.3%	353,000	50.1%
Contribution Margin	1,082,000	59.4%	201,000	64.6%	529,000	65.7%	352,000	49.9%
Traceable Fixed Expenses
Advertising	582,000	32.0%	104,000	33.4%	236,000	29.3%	242,000	34.3%
Salaries	219,000	12.0%	58,000	18.6%	54,000	6.7%	107,000	15.2%
Utilities	39,200	2.2%	9,500	3.1%	15,800	2.0%	13,900	2.0%
Depreciation	81,000	4.4%	19,000	6.1%	34,000	4.2%	28,000	4.0%
Total traceable fixed expenses	921,200	50.6%	190,500	61.3%	339,800	42.2%	390,900	55.4%
Segment margin	160,800	8.8%	10,500	3.4%	189,200	23.5%	-38,900	-5.5%
Common Fixed Expenses:
Advertising (general)	92,000	5.1%
General administrative expense	54,000	3.0%
Total Common Expenses	146,000	8.0%
Net operating income (loss)	14,800	0.8%