Question

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	$	313,000			$	798,000		$	705,000
Regional expenses (traceable):
Cost of goods sold		99,000				241,000			315,000
Advertising		109,000				242,000			240,000
Salaries		52,000				51,000			105,000
Utilities		8,900				15,700			14,100
Depreciation		20,000				30,000			26,000
Shipping expense		16,000				29,000			36,000
Total regional expenses		304,900				608,700			736,100
Regional income (loss) before corporate expenses		8,100				189,300			(31,100	)
Corporate expenses:
Advertising (general)		16,000				40,000			36,000
General administrative expense		19,000				19,000			19,000
Total corporate expenses		35,000				59,000			55,000
Net operating income (loss)	$	(26,900	)		$	130,300		$	(86,100	)

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

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			1,816,000	100.0%	313,000	100.0%	798,000	100.0%	705,000	100.0%
Variable expenses
Cost of goods sold			655,000	36.1%	99,000	31.6%	241,000	30.2%	315,000	44.7%
Shipping expense			81,000	4.5%	16,000	5.1%	29,000	3.6%	36,000	5.1%
total variable expenses			736,000	40.5%	115,000	36.7%	270,000	33.8%	351,000	49.8%
Contribution margin			1,080,000	59.5%	198,000	63.3%	528,000	66.2%	354,000	50.2%
Traceable fixed expenses
Salaries			208,000	11.5%	52,000	16.6%	51,000	6.4%	105,000	14.9%
Utilities			38,700	2.1%	8,900	2.8%	15,700	2.0%	14,100	2.0%
Advertising(traceable)			591,000	32.5%	109,000	34.8%	242,000	30.3%	240,000	34.0%
Depreciation			76,000	4.2%	20,000	6.4%	30,000	3.8%	26,000	3.7%
Total Traceable fixed expenses			913,700	50.3%	189,900	60.7%	338,700	42.4%	385,100	54.6%
Regional segment margin			166,300	9.2%	8,100	2.6%	189,300	23.7%	-31,100	-4.4%
Common fixed expenses
Advertising(general)			92000	5.1%
General Administrative expense			57000	3.1%
total common fixed expense			149000	8.2%
Net operating income(loss)			17,300	1.0%