Shoe Shock Innovations manufactures athletic shoe inserts that cushion the foot

Question

Shoe Shock Innovations manufactures athletic shoe inserts that cushion the foot and reduce the impact of exercise on the joints. The company has two divisions, Sole Inserts and Heel Inserts. A segmented income statement from last month follows.

Chris Kelly is Shoe Shock’s sales manager. Although this statement provides useful information, Chris wants to know how well the company’s two distribution channels, specialty footwear stores and drug stores, are performing. Marketing data indicates that 20% of sole inserts and 75% of heel inserts are sold through specialty footwear stores. A recent analysis of corporate fixed costs revealed that 50% of all fixed costs are traceable to specialty footwear stores and 45% of all fixed costs to drug stores.

Sole Inserts
Division Heel Inserts
Division Total Shoe
Shock Revenue $497,000 $2,544,000 $3,041,000 Less variable expenses 300,000 2,036,000 2,336,000 Contribution margin 197,000 508,000 705,000 Less traceable fixed expenses 120,400 349,200 469,600 Segment margin $76,600 $158,800 235,400 Common fixed costs 172,900 Net operating income $62,500 Specialty Footwear Stores Drug Stores Total Shoe Shock Revenue Sole inserts Heel inserts Total variable expenses Less . variable expenses Heel inserts Sole inserts Total variable expenses Contribution margin Traceable fixed expenses Segmented margin Common fixed expenses

Explanation / Answer

Ans-

Footwear Stores Drug Stores Total Revenue Sole Inserts                99,400        397,600 Heel Inserts           1,908,000        636,000 Total Sales        2,007,400        1,033,600        3,041,000 Sole Inserts                60,000        240,000 Heel Inserts           1,527,000        509,000 Total Variable expenses        1,587,000           749,000        2,336,000 Contribution margin              420,400        284,600           705,000 Less Traceable fixed expenses Based on (469,600+172,900)              321,250        289,125           610,375 Segment margin                99,150          (4,525)             94,625 Common fixed costs             32,125 Net operating income $    62,500.00

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