The most recent financial statement for Reston Company is given below:

RESTON COMPANY Income Statement

For the Month ended March 31, 2015

Sales.......... $900,000 100.0%

Less variable expenses 408,000 45.3

Contribution margin. $492,000 54.7

Less fixed expenses.. 465,000 51.7

Net operating income. $ 27,000 3.0%

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:

a. The Company is divided into two territoriesCentral and Eastern with the following related sales and cost information:

Central Territory Eastern Territory

Sales.. $400,000 $500,000

Variable expenses 208,000 200,000

Traceable fixed expenses 160,000 130,000

The rest of the fixed expenses are common to the two territories.

b. The company sells two productsShoes and Handbags with sales of $100,000 and $300,000 respectively, in the Central Division during May. Variable expenses are 43% of the selling price of Shoes and 55% for Handbags. Cost records show that $60,000 of the Central Territorys fixed expenses are traceable to Shoes and $54,000 to Handbags, with the remainder common to the two products.

Required:

1. Prepare segmented income statements, first showing the total company broken down between sales territories and then showing the Central Territory broken down by product line. Show both Amount and Percent columns for the company in total and for each segment. Round percentage computations to two decimal places.

2. Look at the statement you have prepared showing the total company segmented by sales territory. What points revealed by this statement should be brought to the attention of management?

3. Look at the statement that you have prepared showing the Central Territory segmented by product lines. What decisions should the company make regarding its Shoe and Handbag product lines?