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 $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))

Answer 1

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