• Illinois transportation runs passenger and freight services between Chicago ai
ID: 2404541 • Letter: #
Question
• Illinois transportation runs passenger and freight services between Chicago airports and downstate cities. The owner, Walter Cruber, is an operations-wise manager. He recently heard about a “segment contribution margin” approach at a university continuing education program. His actual results for the first half of 1998 have just arrived. • Total revenue was $5.0 million, of which $3.5 million was freight traffic and $1.5 million was passenger traffic. Of the passenger revenue, 60 percent was generated by route 1, 30 percent by route 2, and 10 percent by route 3. • Total direct controllable fixed costs were $600,000, of which $500,000 was spent on freight traffic. Of the remainder, $40,000 could not be traced to specific routes, although it was clearly applicable to passenger traffic in general. Routes 1, 2 and 3 incurred costs of $30,000, $18,000 and $12,000m respectively. • Total direct costs not controllable by segment managers were $500,000 of which 80 percent was traceable to freight traffic. Of the 20 percent traceable to passenger traffic, Routes 1, 2 and 3 should be charged $40,000, $20,000 and $15,000, respectively. The balance was not traceable to a specific route. • Total variable costs were $3.2 million, of which $2.0 million was freight traffic. Of the $1.2 million traceable to passenger traffic, $60,000, $400,000 and $130,000 were incurred by routes 1, 2 and 3, respectively. • The common fixed costs not clearly traceable to any part of the company amounted to $500,000. Walter has always allocated these on a percentage of sales basis. REQUIRED: 1. Walter asks you to prepare an earnings statement that shows the performance of each segment of the firm by various types of contribution margin.
Explanation / Answer
Gross profit total: Freight=1000000
Passanger= 215000- Fixed costs not traceable(40000)= 175000
Gross profit of the company= 1000000+175000= 1175000
(-) Common fixed costs=500000
Net profit of the comapny=675000
Particulars Freight services Passanger-Route1 Passanger-Route2 Passanger-Route3 Revenue 3500000 900000 450000 150000 (-) Variable cost(Traceable) 2000000 60000 400000 130000 V.C.(Not traceable apportioned on the basis of revenue) 366000 183000 61000 Contribution margin 1500000 474000 (133000) (41000) (-) Direct controllable fixed costs 500000 (40000) (20000) (15000) Segment contribution margin 1000000 434000 (153000) (66000)Related Questions
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