Question
Vulcan Companys contribution format income statement for June is given below: Vulcan Company Income Statement For the Month Ended June 30 Sales $ 800,000 Variable
Vulcan Companys contribution format income statement for June is given below: |
Vulcan Company Income Statement For the Month Ended June 30 | ||||
Sales | $ | 800,000 | ||
Variable expenses | 308,000 | |||
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Contribution margin | 492,000 | |||
Fixed expenses | 455,000 | |||
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Net operating income | $ | 37,000 | ||
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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 sales territoriesNorthern and Southern. The Northern Territory recorded $400,000 in sales and $248,000 in variable expenses during June; the remaining sales and variable expenses were recorded in the Southern Territory. Fixed expenses of $140,000 and $84,000 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 productsPaks and Tibs. Sales of Paks and Tibs totaled $110,000 and $290,000, respectively, in the Northern territory during June. Variable expenses are 33% of the selling price for Paks and 73% for Tibs. Cost records show that $68,200 of the Northern Territorys fixed expenses are traceable to Paks and $60,900 to Tibs, with the remainder common to the two products.
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