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 $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

1a Vulcan Company Format Segmented Income statement for the month ended 30th June Particulars Northern Southern Totals 1 Sales        400,000           500,000           900,000 2 variable expenses        160,000           240,000           400,000 3 Contribution (1-2)        240,000           260,000           500,000 4 Traceable Fixed Costs        176,000           140,000            316,000 5 Non Traceable Fixed Costs          79,500              79,500            159,000           475,000 Net Operating Expenses ( 3-4-5)        (15,500)              40,500              25,000 1b Vulcan Company Northern Territory broken by prodcut line Income statement for the month ended 30th June Particulars Paks Tibs Totals 1 Sales        140,000           260,000           400,000 2 variable expenses          37,800           122,200           160,000 3 Contribution (1-2)        102,200           137,800           240,000 4 Traceable Fixed Costs          67,200              57,200            124,400 5 Non Traceable Fixed Costs          65,550              65,550            131,100           255,500 Net Operating Expenses ( 3-4-5)        (30,550)              15,050           (15,500)

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