Jane Baldwin, Anderson Flooring’s accounting intern, has prepared the following income statement for the month of June.

In preparing the income statement, Jane was unsure how to account for $400,000 in corporate fixed expenses that cannot be traced to a particular division. Since these costs were incurred to run the business as a whole, and she believed that each division benefited equally, she just allocated half to each division.

Required

a. How do you think Jane should have handled the $400,000 in corporate fixed expenses?

b. Prepare a segment margin income statement that highlights each division’s contribution to corporate profits.

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Residential Commercial Total Sales revenue $1,750,000 $4,875,000 3,536,000 $3,125,000 Variable expenses 1,016,000 2,520,000 Contribution margin Fixed expenses 734,000 605,000 1,339,000 670,000 630,000 1,300,000 Operating income $ 64,000 $ (25,000) $ 39,000