Question

Vulcan Companyâs contribution format income statement for June is as follows:

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 companyâs 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 territoriesâNorthern 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 productsâPaks and Tibs. Sales of Paks and Tibs totaled $50,000 and $250,000, respectively, in the Northern territory during June. Variable expenses are 22% of the selling price for Paks and 58% for Tibs. Cost records show that $30,000 of the Northern territoryâs fixed expenses are traceable to Paks and $40,000 to Tibs, with the remainder common to the two products.

Required:
Prepare contribution format segmented income statements.

Answer 1

Answer:

Vulcan Company

a. Segmented Income Statement For the Month Ended June 30

                                              Northern     Southern        Total

Sales                                   $300,000     $450,000    $750,000

Variable expenses                156,000        180,000      336,000

Contribution margin              144,000       270,000       414,000

Fixed expenses:

Traceable                              120,000        108,000      228,000

Non-traceable                                                                 150,000

Net operating income         $24,000     $162,000      $36,000

b) Segmented Income Statements for the Northern Territory:

                                              Paks           Tibs            Total

Sales                                  $50,000    $250,000   $300,000

Variable expenses                11,000       145,000      156,000

Contribution margin         $39,000     $105,000    $144,000

Fixed expenses:

Traceable                            30,000         40,000       70,000

Non-Traceable                                                            50,000

Net operating income       $9,000       $65,000     $24,000

Explanation:

a) Data and Calculations:

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