Problem 7-21 Segment Reporting and Decision-Making [LO7-4]

Vulcan Companys contribution format income statement for June is as follows:

Vulcan Company Income Statement For the Month Ended June 30
Sales	$	960,000
Variable expenses		400,000
Contribution margin		560,000
Fixed expenses		495,000
Net operating income	$	65,000

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:

1. The company is divided into two sales territoriesNorthern and Southern. The Northern Territory recorded $400,000 in sales and $176,000 in variable expenses during June; the remaining sales and variable expenses were recorded in the Southern Territory. Fixed expenses of $192,000 and $117,600 are traceable to the Northern and Southern Territories, respectively. The rest of the fixed expenses are common to the two territories.

2. The company is the exclusive distributor for two productsPaks and Tibs. Sales of Paks and Tibs totaled $100,000 and $300,000, respectively, in the Northern territory during June. Variable expenses are 20% of the selling price for Paks and 52% for Tibs. Cost records show that $40,000 of the Northern Territorys fixed expenses are traceable to Paks and $60,000 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.