Income Statements Segmented by Territory

Script, Inc., has two product lines. The September income statements of each product line and the company are as follows:

SCRIPT, INC.

Product Line and Company Income Statements

For Month of SeptemberPensPencilsTotalSales$25,000$30,000$55,000Less variable expenses(10,000)(12,000)(22,000)Contribution margin15,00018,00033,000Less direct fixed expenses(9,000)(8,000)(17,000)Product margin$6,000$10,000$16,000Less common fixed expenses(6,000)Net income$10,000

Pens and pencils are sold in two territories, Florida and Alabama, as follows:

FloridaAlabamaPen sales$14,000$11,000Pencil sales4,00026,000Total sales$18,000$37,000

The preceding common fixed expenses are traceable to each territory as follows:

Florida fixed expenses$2,000Alabama fixed expenses3,000Home office administration fixed expenses1,000Total common fixed expenses$6,000

The direct fixed expenses of pens, $9,000, and of pencils, $8,000, cannot be identified with either territory. The company's accountants were unable to allocate any of the common fixed expenses to the various segments.

Prepare income statements segmented by territory for September, including a column for the entire firm.Do not use negative signs with your answers.

Script, Inc.

Territory and Company Income Statements

For the Month of SeptemberFloridaAlabamaCompany TotalsSales:PensAnswer

Answer

Answer

PencilsAnswer

Answer

Answer

Total salesAnswer

Answer

Answer

Variable costs:PensAnswer

Answer

Answer

PencilsAnswer

Answer

Answer

TotalAnswer

Answer

Answer

Contribution marginAnswer

Answer

Answer

Direct fixed expensesAnswer

Answer

Answer

Territory marginAnswer

Answer

Answer

Common fixed expenses:PensAnswer

PencilsAnswer

Home officeAnswer

TotalAnswer

Net incomeAnswer

(b) Why are the direct expenses of one type of segment report not necessarily the direct expenses of another type of segment report?

Because direct expenses are all variable costs.

Because only fixed expenses are direct costs.

Because costs that may be directly traceable to one segment base (i.e., territory) may not be directly traceable to another segment base (i.e., product).

Because management must decide which costs are direct and which are indirect.

None of the above.

Please answer all parts of the question.