Question
Problem 6-21 (Static) Segment Reporting and Decision-Making [LO6-4] Vulcan Companys contribution format income statement for June is as follows: Vulcan Company Income Statement For the
Problem 6-21 (Static) Segment Reporting and Decision-Making [LO6-4]
Vulcan Companys contribution format income statement for June is as follows:
Vulcan Company Income Statement For the Month Ended June 30 | ||
Sales | $ | 750,000 |
Variable expenses | 336,000 | |
Contribution margin | 414,000 | |
Fixed expenses | 378,000 | |
Net operating income | $ | 36,000 |
Management is disappointed with the companys performance and is wondering what can be done to improve profits. By examining sales and cost records, you have determined the following:
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The company is divided into two sales territoriesNorthern and Southern. The Northern territory recorded $300,000 in sales and $156,000 in variable expenses during June; the remaining sales and variable expenses were recorded in the Southern territory. Fixed expenses of $120,000 and $108,000 are traceable to the Northern and Southern territories, respectively. The rest of the fixed expenses are common to the two territories.
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The company is the exclusive distributor for two productsPaks and Tibs. Sales of Paks and Tibs totaled $50,000 and $250,000, respectively, in the Northern territory during June. Variable expenses are 22% of the selling price for Paks and 58% for Tibs. Cost records show that $30,000 of the Northern territorys fixed expenses are traceable to Paks and $40,000 to Tibs, with the remainder common to the two products.
Required:
1-a. Prepare contribution format segmented income statements for the total company broken down between sales territories.
1-b. Prepare contribution format segmented income statements for the Northern Territory broken down by product line.
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