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Tennessee Company is geographically segmented into two divisions East and West. The companys income statement for the last month is presented below: Total Company Division

Tennessee Company is geographically segmented into two divisions East and West. The companys income statement for the last month is presented below:

Total Company

Division

% of sales

West

% sales

East

% sales

Sales

$8,500,000

$4,675,000

$3,825,000

Variable expenses

3,395,750

1,636,250

1,759,500

Contribution margin

$5,104,250

60%

$3,038,750

65%

$2,065,500

54%

Total Fixed expenses

3,825,000

45%

1,912,500

41%

1,912,500

50%

Net income

$1,279,250

15%

$1,126,250

24%

$153,000

4%

Management is concerned with the reported results, especially the East Divisions net income results in relation to the net income results of the West Division. They have asked you to examine the East Division in relation to West Division and further to examine the East Division to determine if any of the three product lines are causing the low level of profitability in that division.

You have been provided the following additional information:

Of the total fixed expenses reported above, management has determined that 30% are traceable the East Division, 55% are traceable to the West Division. The remaining fixed expenses are common to both divisions.

The East provided the following respecting the three product lines:

Product Line

Cola

Fruit Drinks

Flavoured Water

Sales

$1,147,500

$1,721,250

$956,250

Traceable fixed expenses

Administration

103,275

103,275

51,638

Advertising

255,606

139,421

69,711

Depreciation

123,930

154,913

30,983

Variable Expenses

351,900

615,825

791,775

The remaining fixed costs for the East Division are common to all product lines.

Required:

  1. Prepare segmented income statements for:
    1. total company broken down between the two divisions,
    2. the East Division broken down by product line.

Show both amount and percent columns for all information.

  1. What observations and recommendations would you make to management based on your analysis? Be sure to integrate your analysis.

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