In: Accounting
If a cost is a common cost of the segments on a segmented income statement, the cost should:
not be allocated to the segments. |
be excluded from the income statement. |
be treated as a product cost rather than as a period cost. |
be allocated to the segments on the basis of segment sales. |
.
Anderson Corporation has two major business segments-North and South. In July, the North business segment had sales revenues of $220,000, variable expenses of $125,000, and traceable fixed expenses of $29,000. During the same month, the South business segment had sales revenues of $890,000, variable expenses of $472,000, and traceable fixed expenses of $169,000. The common fixed expenses totaled $246,000 and were allocated as follows: $123,000 to the North business segment and $123,000 to the South business segment.
The contribution margin of the South business segment is:
Ans | If a cost is a common cost of the segments on a segmented income statement, the cost should not be allocated to segment. | |||||
Common cost are those cost which cannot be traced to individual department so it cannot be allocated to segments. | ||||||
Anderson Corporation | ||||||
Divisional Income Statement | ||||||
For July | ||||||
North division | South division | Total | ||||
Sales Revenue | $ 220,000.00 | $ 890,000.00 | $ 1,110,000.00 | |||
Variable Expenses | $ 125,000.00 | $ 472,000.00 | $ 597,000.00 | |||
Contribution Margin=(sales-variable cost) | $ 95,000.00 | $ 418,000.00 | $ 513,000.00 | |||
Traceable Fixed expenses | $ 29,000.00 | $ 169,000.00 | $ 198,000.00 | |||
Common Fixed expenses | $ 246,000.00 | |||||
Income from operation | $ 66,000.00 | $ 249,000.00 | $ 69,000.00 | |||
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