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			$	803,000		$	704,000
Regional expenses (traceable):
Cost of goods sold		90,000				238,000			317,000
Advertising		101,000				242,000			236,000
Salaries		54,000				58,000			107,000
Utilities		9,500				15,600			13,800
Depreciation		21,000				32,000			25,000
Shipping expense		16,000				32,000			45,000
Total regional expenses		291,500				617,600			743,800
Regional income (loss) before corporate expenses		21,500				185,400			(39,800	)
Corporate expenses:
Advertising (general)		14,000				41,000			32,000
General administrative expense		21,000				21,000			21,000
Total corporate expenses		35,000				62,000			53,000
Net operating income (loss)	$	(13,500	)		$	123,400		$	(92,800	)

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

	Total Company		West		Central		East
	Amount	%	Amount	%	Amount	%	Amount	%
Sales	$1,820,000	100.0%	$313,000	100.0%	$803,000	100.0%	$704,000	100.0%
Variable expenses:
Cost of goods sold	$645,000	35.4%	$90,000	28.8%	$238,000	29.6%	$317,000	45.0%
Shipping expenses	$93,000	5.1%	$16,000	5.1%	$32,000	4.0%	$45,000	6.4%
Total variable expenses	$738,000	40.5%	$106,000	33.9%	$270,000	33.6%	$362,000	51.4%
Contribution margin	$1,082,000	59.5%	$207,000	66.1%	$533,000	66.4%	$342,000	48.6%
Traceable fixed expenses:
Advertising	$579,000	31.8%	$101,000	32.3%	$242,000	30.1%	$236,000	33.5%
Salaries	$219,000	12.0%	$54,000	17.3%	$58,000	7.2%	$107,000	15.2%
Utilities	$38,900	2.1%	$9,500	3.0%	$15,600	1.9%	$13,800	2.0%
Depreciation	$78,000	4.3%	$21,000	6.7%	$32,000	4.0%	$25,000	3.6%
Total traceable fixed expenses	$914,900	50.3%	$185,500	59.3%	$347,600	43.3%	$381,800	54.2%
Reginal segment margin	$167,100	9.2%	$21,500	6.9%	$185,400	23.1%	($39,800)	-5.7%
Common fixed expenses:
Advertising (general)	$87,000	4.8%
General administratice expenses	$63,000	3.5%
Total common fixed expense	$150,000	8.2%
Net operating income (loss)	$              17,100	0.9%