Problem 6-21A Segment Reporting and Decision Making [LO6-4] Management is disapp

Question

Problem 6-21A Segment Reporting and Decision Making [LO6-4]

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 $160,000 in variable expenses during June; the remaining sales and variable expenses were recorded in the Southern Territory. Fixed expenses of $176,000 and $140,000 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 $140,000 and $260,000, respectively, in the Northern territory during June. Variable expenses are 27% of the selling price for Paks and 47% for Tibs. Cost records show that $67,200 of the Northern Territory’s fixed expenses are traceable to Paks and $57,200 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))

Explanation / Answer

Sales Territory Total Company Northern Southern Amount % Amount % Amount %   Sales $900,000 100.0% 400000 100.0% $500,000 100.0%   Variable expenses $400,000 44.4% 160,000 40.0% 240,000 48.0%   Contribution margin $500,000 55.6% 240,000 60.0% 260,000 52.0%   Traceable fixed expenses $316,000 35.1% 176,000 44.0% 140,000 28.0%   Sales territory segment margin $184,000 20.4% $64,000 16.0% $120,000 24.0%   Common fixed expenses 159,000 17.7%   Net operating income $25,000 2.8% Product Line Northern Territory Paks Tibs Amount % Amount % Amount %   Sales $400,000 100.0% 140000 100.0% 260000 100.0%   Variable expenses $160,000 40.0% 37,800 27.0% 122,200 47.0%   Contribution margin $240,000 60.0% 102,200 73.0% 137,800 53.0%   Traceable fixed expenses $124,400 31.1% 67,200 48.0% 57,200 22.0%   Product line segment margin $115,600 28.9% $35,000 25.0% $80,600 31.0%   Common fixed expenses 51,600 12.9%   Sales territory segment margin $64,000 16.0%

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