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Exercise 7 - 1 7 ( Algo ) Working with a Segmented Income Statement [ LO 7 - 4 ] Problem 7 - 2 1
Exercise Algo Working with a Segmented Income Statement LOProblem Algo Segment Reporting and DecisionMaking LO
Vulcan Company's contribution format income statement for June is as follows:
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:
a The company is divided into two sales territoriesNorthern and Southern. The Northern Territory recorded $ in sales and
$ in variable expenses during June; the remaining sales and variable expenses were recorded in the Southern Territory.
Fixed expenses of $ and $ are traceable to the Northern and Southern Territories, respectively. The rest of the fixed
expenses are common to the two territories.
b The company is the exclusive distributor for two productsPaks and Tibs. Sales of Paks and Tibs totaled $ and $
respectively, in the Northern territory during June. Variable expenses are of the selling price for Paks and for Tibs. Cost
records show that $ of the Northern Territory's fixed expenses are traceable to Paks and $ to Tibs, with the remainder
common to the two products.
Required:
a Prepare contribution format segmented income statements for the total company broken down between sales territories.
b Prepare contribution format segmented income statements for the Northern Territory broken down by product line.
Assume that Minneapolis' sales by major market are:
The company would like to initiate an intensive advertising campaign in one of the two market segments during the next month. The
campaign would cost $ Marketing studies indicate that such a campaign would increase sales in the Medical market by $
or increase sales in the Dental market by $
Required:
How much would the company's profits increase decrease if it implemented the advertising campaign in the Medical Market?
How much would the company's profits increase decrease if it implemented the advertising campaign in the Dental Market?
In which of the markets would you recommend that the company focus its advertising campaign?
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