Illinois Transportation runs passenger and freight services between Chicago airports and downstate cities. The owner, Walter Gruber, 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 $12,000, 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, $670,000, $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.
2. Comment on what the results tell Walter.