Question

Vulcan Company’s contribution format income statement for June is as follows: Vulcan Company Income Statement For the Month Ended June 30 Sales $ 800,000 Variable expenses 300,000 Contribution margin 500,000 Fixed expenses 450,000 Net operating income $ 50,000 Management is disappointed with the company’s performance and is wondering what can be done to improve profits. By examining sales and cost records, you have determined the following: The company is divided into two sales territories—Northern and Southern. The Northern Territory recorded $300,000 in sales and $150,000 in variable expenses during June; the remaining sales and variable expenses were recorded in the Southern Territory. Fixed expenses of $123,000 and $100,000 are traceable to the Northern and Southern Territories, respectively. The rest of the fixed expenses are common to the two territories. The company is the exclusive distributor for two products—Paks and Tibs. Sales of Paks and Tibs totaled $105,000 and $195,000, respectively, in the Northern territory during June. Variable expenses are 24% of the selling price for Paks and 64% for Tibs. Cost records show that $52,500 of the Northern Territory’s fixed expenses are traceable to Paks and $40,950 to Tibs, with the remainder common to the two products. Required: 1-a. Prepare contribution format segmented income statements for the total company broken down between sales territories. 1-b. Prepare contribution format segmented income statements for the Northern Territory broken down by product line.

Answer 1

		Sales Territory
	Total Company		Northern		Southern
	Amount	%	Amount	%	Amount	%
Sales	$800,000	100.0%	300000	100.0%	$500,000	100.0%
Variable expenses	$300,000	37.5%	150,000	50.0%	150,000	30.0%
Contribution margin	$500,000	62.5%	150,000	50.0%	350,000	70.0%
Traceable fixed expenses	$223,000	27.9%	123,000	41.0%	100,000	20.0%
Sales territory segment margin	$277,000	34.6%	$27,000	9.0%	$250,000	50.0%
Common fixed expenses	227,000	28.4%
Net operating income	$50,000	6.3%
		Product Line
	Northern Territory		Paks		Tibs
	Amount	%	Amount	%	Amount	%
Sales	$300,000	100.0%	105000	100.0%	195000	100.0%
Variable expenses	$150,000	50.0%	25,200	24.0%	124,800	64.0%
Contribution margin	$150,000	50.0%	79,800	76.0%	70,200	36.0%
Traceable fixed expenses	$93,450	31.2%	52,500	50.0%	40,950	21.0%
Product line segment margin	$56,550	18.9%	$27,300	26.0%	$29,250	15.0%
Common fixed expenses	29,550	9.9%
Sales territory segment margin	$27,000	9.0%