Management is disappointed with the company’s performance and is wondering what

Question

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:

The company is divided into two sales territories—Northern and Southern. The Northern Territory recorded $400,000 in sales and $200,000 in variable expenses during June; the remaining sales and variable expenses were recorded in the Southern Territory. Fixed expenses of $172,000 and $135,000 are traceable to the Northern and Southern Territories, respectively. The rest of the fixed expenses are common to the two territories.

The company is the exclusive distributor for two products—Paks and Tibs. Sales of Paks and Tibs totaled $200,000 and $200,000, respectively, in the Northern territory during June. Variable expenses are 26% of the selling price for Paks and 74% for Tibs. Cost records show that $94,000 of the Northern Territory’s fixed expenses are traceable to Paks and $42,000 to Tibs, with the remainder common to the two products.

Prepare contribution format segmented income statements for the total company broken down between sales territories. (Round the percentage answers to one decimal place (i.e .1234 should be entered as 12.3))

Prepare contribution format segmented income statements for the Northern Territory broken down by product line. (Round the percentage answers to one decimal place (i.e .1234 should be entered as 12.3))

Explanation / Answer

Vulcan Company Income statement for the month ended June Sales Territory Total Company Northern Southern Amount % Amount % Amount % Sales    900,000.00 100.0%                     400,000.00 100.0%               500,000.00 100.0% Variable expenses    400,000.00 44.4%                     200,000.00 50.0%               200,000.00 40.0% Contribution Margin    500,000.00 55.6%                     200,000.00 50.0%               300,000.00 60.0% Fixed Expenses **    470,000.00 52.2%                     253,500.00 63.4%               216,500.00 43.3% Net Income      30,000.00 3.3%                     (53,500.00) -13.4%                 83,500.00 16.7% **Fixed expenses Total          470,000 -Northern (a)          172,000 -Southern (b)          135,000 Net          163,000 Allocated to Northern (Net/2) ©            81,500 Allocated to Southern (net/2) (d)            81,500 Total Fixed expenses of Northern (a+c)          253,500 Total Fixed expenses of Southern (b+d)          216,500 Vulcan Company Income statement for the month ended June - Northern Territory Product Line Northern Paks Tibs Amount % Amount % Amount % Sales          400,000 100.0%                           200,000 100.0%                     200,000 100.0% Variable expenses          200,000 50.0%                             52,000 26.0%                     148,000 74.0% Contribution Margin          200,000 22.2%                           148,000 74.0%                       52,000 26.0% Fixed Expenses **          253,500 28.2%                           152,750 76.4%                     100,750 50.4% Net Income          (53,500) -13.4%                             (4,750) -2.4%                     (48,750) -24.4% **Fixed expenses Total          253,500 -Paks (a)            94,000 -Tibs (b)            42,000 Net          117,500 Allocated to Paks (Net/2) ©            58,750 Allocated to Tibs (net/2) (d)            58,750 Total Fixed expenses of Paks (a+c)          152,750 Total Fixed expenses of Tibs (b+d)          100,750

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