Reference no: EM131914698

Question - 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%	5%
City of Minneapolis sales	$800	$900	$400
City of st paul sales	$200	$100	$200

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.