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			$	800,000		$	703,000
Regional expenses (traceable):
Cost of goods sold		92,000				239,000			320,000
Advertising		101,000				242,000			239,000
Salaries		59,000				56,000			115,000
Utilities		9,100				16,000			14,100
Depreciation		25,000				30,000			28,000
Shipping expense		18,000				32,000			37,000
Total regional expenses		304,100				615,000			753,100
Regional income (loss) before corporate expenses		\ 8,900\				185,000			(50,100	)
Corporate expenses:
Advertising (general)		18,000				42,000			35,000
General administrative expense		19,000				19,000			19,000
Total corporate expenses		37,000				61,000			54,000
Net operating income (loss)	$	(28,100	)		$	124,000		$	(104,100	)

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

Answer 1

3)   Contribution Format Segmented Income Statement (Amts in $)

Particulars	Total Company	West Region	Central Region	East Region
Sales (A)	1,816,000	313,000	800,000	703,000
Less: Variable expenses
Cost of goods sold	651,000	92,000	239,000	320,000
Shipping expense	87,000	18,000	32,000	37,000
Total Variable Exp. (B)	738,000	110,000	271,000	357,000
Contribution Margin (C = A-B)	1,078,000	203,000	529,000	346,000
Less: Traceable Fixed Exp.
Advertising	582,000	101,000	242,000	239,000
Salaries	230,000	59,000	56,000	115,000
Utilities	39,200	9,100	16,000	14,100
Depreciation	83,000	25,000	30,000	28,000
Total traceable fixed exp. (D)	934,200	194,100	344,000	396,100
Net Regional income/(loss) (E = C-D)	143,800	8,900	185,000	(50,100)
Common Fixed Exp.
Advertising (general)	95,000
General administrative exp.	57,000
Total common fixed exp. (F)	152,000
Net Operating income/(loss) (E-F)	(8,200)