Question
Vulcan Company?s contribution format income statement for June is given below: Vulcan Company Income Statement For the Month Ended June 30 Sales $ 900,000 Variable
Vulcan Company?s contribution format income statement for June is given below: |
Vulcan Company Income Statement For the Month Ended June 30 | |||
Sales | $ | 900,000 | |
Variable expenses | 400,000 | ||
Contribution margin | 500,000 | ||
Fixed expenses | 450,000 | ||
Net operating income | $ | 50,000 | |
Management is disappointed with the company?s 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 sales territories?Northern and Southern. The Northern Territory recorded $400,000 in sales and $180,000 in variable expenses during June; the remaining sales and variable expenses were recorded in the Southern Territory. Fixed expenses of $200,000 and $115,000 are traceable to the Northern and Southern Territories, respectively. The rest of the fixed expenses are common to the two territories. |
b. | The company is the exclusive distributor for two products?Paks and Tibs. Sales of Paks and Tibs totaled $170,000 and $230,000, respectively, in the Northern territory during June. Variable expenses are 22% of the selling price for Paks and 62% for Tibs. Cost records show that $71,400 of the Northern Territory?s fixed expenses are traceable to Paks and $50,600 to Tibs, with the remainder common to the two products. |
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