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Shannon Company segments its income statement into its North and South Divisions. The company’s overall sales,...

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 $1,050,000, 40%, and $21,000, respectively. The North Division’s contribution margin and contribution margin ratio are $154,000 and 44%, respectively. The South Division’s segment margin is $175,000. The company has $262,500 of common fixed expenses that cannot be traced to either division.

Required:

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. (Round your percentage answers to 1 decimal place (i.e .1234 should be entered as 12.3))

Solutions

Expert Solution

Solution:

The completed segmented income statement should appear as follows:

Divisions

Total Company

South

North

Amount

%

Amount

%

Amount

%

Sales.................................................................

$1,050,000

100.0

$350,000

100.0

$700,000

100.0

Variable expenses.............................................

630,000

60.0

196,000

56

434,000

62.0

Contribution margin..........................................

420,000

40.0

154,000

44

266,000

38.0

Traceable fixed expenses..................................

136,500

13

21,000

6

115,500

16.5

Territorial segment margin.................................

283,500

27

$ 133,000

   38

$150,500

21.5

Common fixed expenses...................................

262,500

25

Net operating income........................................

$ 21,000

   2.0


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