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 $228,000 in variable expenses during June; the remaining sales and variable expenses were recorded in the Southern Territory. Fixed expenses of $168,000 and $130,000 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 $140,000 and $260,000, respectively, in the Northern territory during June. Variable expenses are 31% of the selling price for Paks and 71% for Tibs. Cost records show that $64,400 of the Northern Territory’s fixed expenses are traceable to Paks and $52,000 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

Division Wise Contribution Statement Particulars Northern Territory Southern Territory Total Sales         400,000.00         500,000.00      900,000.00 Less: Variable Costs         228,000.00         180,000.00      408,000.00 Contribution         172,000.00         320,000.00      492,000.00 Traceable Fixed Costs         168,000.00         130,000.00      298,000.00 Operating Income before untraceable fixed costs              4,000.00         190,000.00      194,000.00 Untraceable Fixed Costs      167,000.00 Operating Income        27,000.00 Produt Wise Contribution Statement - Northern territory Particulars Paks Tibs Northern Territory Sales         140,000.00         260,000.00      400,000.00 Less: Variable Costs            43,400.00         184,600.00      228,000.00 Contribution            96,600.00            75,400.00      172,000.00 Traceable Fixed Costs            64,400.00            52,000.00      116,400.00 Operating Income before untraceable fixed costs            32,200.00            23,400.00        55,600.00 Untraceable Fixed Costs        51,600.00 Operating Income           4,000.00

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