Reference no: EM13508760

Vulcan Company's contribution format income statement for June is given below:

Vulcan Company Income Statement For the Month Ended June 30
Sales	$859,000
Variable expenses	396,858
Contribution margin	462,142
Fixed expenses	436,372
Net operating income	$25,770

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%u2014Northern and Southern. The Northern territory recorded $411,000 in sales and $209,850 in variable expenses during June; the remaining sales and variable expenses were recorded in the Southern territory. Fixed expenses of $150,000 and $120,000 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%u2014Paks and Tibs. Sales of Paks and Tibs totaled $105,000 and $306,000, respectively, in the Northern territory during June. Variable expenses are 25% of the selling price for Paks and 60% for Tibs. Cost records show that $57,000 of the Northern territory's fixed expenses are traceable to Paks and $50,000 to Tibs, with the remainder common to the two products.

Requirement 1:

Prepare contribution format segmented income statements. (Round percentage computations to 1 decimal place. Negative amounts other than expenses should be indicated by a minus sign. Omit the "tiny_mce_markerquot; and "%" signs in your response.)

			Sales Territory
	Total Company		Northern		Southern
	Amount	%	Amount	%	Amount	%
Sales	$		$		$
Variable expenses
Contribution margin
Traceable fixed expenses
Sales territory segment margin			$		$
Common fixed expenses
Net operating income	$

			Product Line
	Northern Territory		Paks		Tibs
	Amount	%	Amount	%	Amount	%
Sales	$		$		$
Variable expenses
Contribution margin
Traceable fixed expenses
Product line segment margin			$		$
Common fixed expenses
Sales territory segment margin	$

Requirement 2:

Based on the above income statements, which of the following the statement(s) is true? (Select all that apply.)

The high traceable fixed expenses of the Paks product may simply mean that the Paks product is not highly leveraged.

The Northern territory has high traceable fixed expenses.

An increase in sales of Paks product line would not greatly enhance profits in the Northern territory.

Compared to the Southern territory, the Northern territory has a low contribution margin ratio.

The Northern territory has a poor sales mix.

Overall, compared to the Southern territory, the Northern territory is very weak.