Reference no: EM131782150

Segment Reporting

Minnesota Break Company bakes three products:  donuts, bread and pastries.  It sells them in cities of Minneapolis and St. Paul.  For March, its first month of operation, the following income statement was prepared:

Minnesota Bread Company Territory and Company Income Statements For the Month of March

	Minneapolis	St paul	Total
Sales	$2100	$500	$2600
Cost of goods sold	(1500)	(300)	(1800)
Gross profit	600	200	800
Selling and admin expenses	(400)	(225)	(625)
Net income	$200	$(25)	$175

Sales and selected variable expense data are as follows:

	Donuts	Bread	Pasteries
Fixed baking expenses	$200	$140	$100
Variable baking expenses as a % of sales	50%	50%	60%
Variable selling expenses as a % of sales	4%	4%	6%
City of Minneapolis sales	$850	$900	$350
City of st paul sales	$200	$150	$150

The fixed selling expenses were $385 for March, of which $160 was a direct expense of the Minneapolis market and $225 was a direct expense of the St. Paul market.  Fixed administration expenses were $130, which management has decided not to allocate when using the contribution approach.

REQUIRED

• A. Prepare a segment income statement showing the territory margin for each sales territory for March. Include a column for the entire firm.
• B. Prepare segment income statements  showing the product margin for each product.  Include a column for the entire firm.
• C. If the pastries line is dropped and fixed baking expenses do not change, what is the product margin for donuts and bread?
• D. What other type of segmentation might be useful to Minnesota Bread. Explain.