Cervetti Corporation has two major business segments-East and West. In July, the

Question

Cervetti Corporation has two major business segments-East and West. In July, the East business segment had sales revenues of $220,000, variable expenses of $125,000, and traceable fixed expenses of $29,000. During the same month, the West business segment had sales revenues of $890,000, variable expenses of $472,000, and traceable fixed expenses of $169,000. The common fixed expenses totaled $246,000 and were allocated as follows: $123,000 to the East business segment and $123,000 to the West business segment.

A properly constructed segmented income statement in a contribution format would show that the segment margin of the East business segment is:

Explanation / Answer

Segment Margin of East business segment is $ (57000).

Contribution Margin Income Statement East West Sale 220000 890000 Less: Variable Costs 125000 472000 Contribution Margin 95000 418000 Less: Fixed Costs 152000 292000 Operating Income -57000 126000

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