Management is disappointed with the company’s performance and is wondering what

Question

  

  

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 $400,000 in sales and $200,000 in variable expenses during June; the remaining sales and variable expenses were recorded in the Southern Territory. Fixed expenses of $172,000 and $135,000 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 $200,000 and $200,000, respectively, in the Northern territory during June. Variable expenses are 26% of the selling price for Paks and 74% for Tibs. Cost records show that $94,000 of the Northern Territory’s fixed expenses are traceable to Paks and $42,000 to Tibs, with the remainder common to the two products.

Prepare contribution format segmented income statements for the total company broken down between sales territories. (Round the percentage answers to one decimal place (i.e .1234 should be entered as 12.3))

Prepare contribution format segmented income statements for the Northern Territory broken down by product line. (Round the percentage answers to one decimal place (i.e .1234 should be entered as 12.3))

Vulcan Company’s contribution format income statement for June is given below:

Explanation / Answer

Vulcan Company

Income Statement

For the month ended June 30

Total Company

Northern

Southern

Sales

$

900000

400000

500000

Variable Expenses

400000

200000

200000

Contribution Margin

500000

200000

300000

Traceable Fixed Expenses

307000

172000

135000

Divisional Segment Margin

193000

28000

165000

Common Fixed Expenses not traceable to individual divisions

163000

Net Operating Income

$

30000

Vulcan Company

Income Statement

For the month ended June 30

Northern Division

Paks

Tibs

Sales

$

400000

200000

200000

Variable Expenses

200000

52000

148000

Contribution Margin

200000

148000

52000

Traceable Fixed Expenses

136000

94000

42000

Divisional Segment Margin

64000

54000

10000

Common Fixed Expenses not traceable to individual divisions

36000

Net Operating Income

$

28000

Vulcan Company

Income Statement

For the month ended June 30

Total Company

Northern

Southern

Sales

$

900000

400000

500000

Variable Expenses

400000

200000

200000

Contribution Margin

500000

200000

300000

Traceable Fixed Expenses

307000

172000

135000

Divisional Segment Margin

193000

28000

165000

Common Fixed Expenses not traceable to individual divisions

163000

Net Operating Income

$

30000

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