In: Accounting
Income Statements Segmented by Territory
Script, Inc., has two product lines. The September income
statements of each product line and the company are as follows:
SCRIPT, INC. Product Line and Company Income Statements For Month of September |
|||
---|---|---|---|
Pens | Pencils | Total | |
Sales | $25,000 | $30,000 | $55,000 |
Less variable expenses | (10,000) | (12,000) | (22,000) |
Contribution margin | 15,000 | 18,000 | 33,000 |
Less direct fixed expenses | (8,000) | (6,000) | (14,000) |
Product margin | $7,000 | $12,000 | $19,000 |
Less common fixed expenses | (6,000) | ||
Net income | $13,000 |
Pens and pencils are sold in two territories, Florida and Alabama, as follows:
Florida | Alabama | |
---|---|---|
Pen sales | $11,000 | $14,000 |
Pencil sales | 13,000 | 17,000 |
Total sales | $24,000 | $31,000 |
The preceding common fixed expenses are traceable to each territory as follows:
Florida fixed expenses | $2,000 |
Alabama fixed expenses | 3,000 |
Home office administration fixed expenses | 1,000 |
Total common fixed expenses | $6,000 |
The direct fixed expenses of pens, $8,000, and of pencils, $6,000, cannot be identified with either territory. The company's accountants were unable to allocate any of the common fixed expenses to the various segments.
Prepare income statements segmented by territory for September, including a column for the entire firm. Do not use negative signs with your answers.
Script, Inc. Territory and Company Income Statements For the Month of September |
|||
---|---|---|---|
Florida | Alabama | Company Totals | |
Sales: | |||
Pens | Answer | Answer | Answer |
Pencils | Answer | Answer | Answer |
Total sales | Answer | Answer | Answer |
Variable costs: | |||
Pens | Answer | Answer | Answer |
Pencils | Answer | Answer | Answer |
Total | Answer | Answer | Answer |
Contribution margin | Answer | Answer | Answer |
Direct fixed expenses | Answer | Answer | Answer |
Territory margin | Answer | Answer | Answer |
Common fixed expenses: | |||
Pens | Answer | ||
Pencils | Answer | ||
Home office | Answer | ||
Total | Answer | ||
Net income | Answer |
(b) Why are the direct expenses of one type of segment report not necessarily the direct expenses of another type of segment report?
a. Because direct expenses are all variable costs.
b. Because only fixed expenses are direct costs.
c. Because costs that may be directly traceable to one segment base (i.e., territory) may not be directly traceable to another segment base (i.e., product).
d. Because management must decide which costs are direct and which are indirect.
e. None of the above.