Reference no: EM131814174
PROBLEM - Segment Reporting and Decision-Making
Vulcan Company's contribution format income statement for June is given below:
Vulcan Company
Income Statement
For the Month Ended June 30
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $750,000
Variable expenses . . . . . . . . . . . . . . . . . . . . . . . 336,000
Contribution margin . . . . . . . . . . . . . . . . . . . . . . 414,000
Fixed expenses . . . . . . . . . . . . . . . . . . . . . . . . . 378,000
Net operating income . . . . . . . . . . . . . . . . . . . . $ 36,000
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 $300,000 in sales and $156,000 in variable expenses during June; the remaining sales and variable expenses were recorded in the Southern territory. Fixed expenses of $120,000 and $108,000 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 $50,000 and $250,000, respectively, in the Northern territory during June. Vari¬able expenses are 22% of the selling price for Paks and 58% for Tibs. Cost records show that $30,000 of the Northern territory's fixed expenses are traceable to Paks and $40,000 to Tibs, with the remainder common to the two products.
Required:
1. Prepare contribution format segmented income statements first showing the total company broken down between sales territories and then showing the Northern territory broken down by product line. In addition, for the company as a whole and for each segment, show each item on the segmented income statements as a percent of sales.
2. Look at the statement you have prepared showing the total company segmented by sales territory. What insights revealed by this statement should be brought to the attention of management?
3. Look at the statement you have prepared showing the Northern territory segmented by product lines. What insights revealed by this statement should be brought to the attention of management?
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