Question

Mylock Co. sells home exercise equipment. The company has two sales territories, Eastern and Western. Two products are sold in each territory: FasTrak (a Nordic ski simulator) and RowMaster (a stationary rowing machine).

During January, the following data are reported for the Eastern territory.

FastTrakRowMaster

Sales$600,000$750,000

CM ratio55%40%

Traceable fixed costs80,000150,000

Common fixed costs in the Eastern territory amounted to $120,000 during the month.

During January, the Western territory reported total sales of $600,000, variable costs of $270,000, and a responsibility margin of $200,000. Muscle Bound also incurred $180,000 of common fixed costs that were not traceable to either sales territory.

In addition to being profit centers, each territory is also evaluated as an investment center. Average assets utilized by the Eastern and Western territories amount to $14,000,000 and $12,000,000, respectively.

Required:

a.Construct the January income statement for the Eastern territory by product line.

b.Prepare the January income statement for the company showing profits by sales territories. Conclude your statement with income from operations for the company and with responsibility margins for the two territories.

c. Compute the rate of return on average assets earned in each sales territory during the month of January