Reference no: EM131694054

Problem 1:

Shoe Shock Innovations manufactures athletic shoe inserts that cushion the foot and reduce the impact of exercise on the joints. The company has two divisions, Sole Inserts and Heel Inserts. A segmented income statement from last month follows.

	Sole Inserts Division	Heel Inserts Division	Total Shoe Shock
Revenue	$493,000	$2,533,000	$3,026,000
Less variable expenses	301,000	2,023,000	2,324,000
Contribution margin	192,000	510,000	702,000
Less traceable fixed expenses	122,300	350,000	472,300
Segment margin	$69,700	$160,000	229,700
Common fixed costs			174,100
Net operating income			$55,600

Chris Kelly is Shoe Shock's sales manager. Although this statement provides useful information, Chris wants to know how well the company's two distribution channels, specialty footwear stores and drug stores, are performing. Marketing data indicates that 20% of sole inserts and 75% of heel inserts are sold through specialty footwear stores. A recent analysis of corporate fixed costs revealed that 50% of all fixed costs are traceable to specialty footwear stores and 45% of all fixed costs to drug stores.

(a) Prepare a segment margin income statement for Shoe Shock's two distribution channels.

Problem 2

Hamilton and Battles, Ltd. produces and sells two products-guitar cases and violin cases. Each of these products is made in a dedicated manufacturing facility, and the product line managers are evaluated based on the product line's return on investment. The following data is from the most recent year of operations.

		Guitar Cases		Violin Cases
Sales		$3,000,000		$4,522,000
Variable costs		1,232,000		2,719,000
Direct fixed costs		1,444,100		1,532,400
Average assets		2,000,000		1,500,000

(a) Calculate the margin and asset turnover for each product line.

Problem 3:

Trent Weaver was reviewing the latest income statement for Taryn Enterprises. For the second year in a row, the Collectibles division was showing a negative segment margin, and Trent thought it was time to close the division to increase the company's operating income. The income statement that he examined follows.

	Promotions Division	Collectibles Division	Total
Revenue	$5,317,500	$2,863,900	$8,181,400
Less variable expenses	3,652,100	1,647,300	5,299,400
Contribution margin	1,665,400	1,216,600	2,882,000
Less traceable fixed expenses	947,800	1,278,400	2,226,200
Segment margin	$717,600	$(61,800	655,800
Common fixed costs			584,000
Net operating income			$71,800

When Trent broke the news, Taylor Tatum, manager of the Collectibles division, was upset. Taylor thought that Trent could be making a snap judgment, and suggested that he look at the division's detailed operating results. The Collectibles division is composed of two groups, Sports Memorabilia and Coins and Stamps. Sports Memorabilia accounts for 60% of the division's sales and contribution margin; Coins and Stamps accounts for the other 40%. Sports Memorabilia's traceable fixed costs are $810,800; Coins and Stamps, $246,400.

(a) Prepare a segment margin income statement for the Collectibles division that shows the segment margin of each group.