Problem 10-26 (Part Level Submission)

Shoe Shock Innovations manufactures athletic shoe inserts that cushion the foot and reduce the impact of exercise on the joints. The company has two divisions, Sole Inserts and Heel Inserts. A segmented income statement from last month follows.

	Sole Inserts Division		Heel Inserts Division		Total Shoe Shock
Revenue	$490,000		$2,500,000		$2,990,000
Less variable expenses	300,000		2,000,000		2,300,000
Contribution margin	190,000		500,000		690,000
Less traceable fixed expenses	120,000		348,000		468,000
Segment margin	$70,000		$152,000		222,000
Common fixed costs					170,000
Net operating income					$52,000

Chris Kelly is Shoe Shocks sales manager. Although this statement provides useful information, Chris wants to know how well the companys two distribution channels, specialty footwear stores and drug stores, are performing. Marketing data indicates that 20% of sole inserts and 75% of heel inserts are sold through specialty footwear stores. A recent analysis of corporate fixed costs revealed that 50% of all fixed costs are traceable to specialty footwear stores and 45% of all fixed costs to drug stores.

Prepare a segment margin income statement for Shoe Shocks two distribution channels. (If the amount is negative then enter with a negative sign preceding the number e.g. -5,125 or parenthesis. e.g. (5,125).)

Based on your analysis, what recommendations would you make to the company