Swanky Styles produces fine clothing for women. There are two primary divisions

Question

Swanky Styles produces fine clothing for women. There are two primary divisions within the company: professional wear and formal wear. The following income statements were prepared for the divisions:

The income statements were prepared by an inexperienced staff accountant. Common fixed expenses of $ 31,000 were allocated to the two divisions as follows: 40 percent to professional wear and 60 percent to formal wear.

Required:

Prepare new segmented income statements for Swanky Styles after removing the common fixed expenses.

Formal Professional $1,300,000 995,000 $305,000 115,000 $190,000 Sales Variable expenses Contribution margin $1,810,000 1,430,000 $380,000 175,000 $205,000 Income

Explanation / Answer

Segmented Income Statement Professional Formal Total Sales    1,300,000.00    1,810,000.00    3,110,000.00 Variable Expenses        995,000.00    1,430,000.00    2,425,000.00 Contribution        305,000.00        380,000.00        685,000.00 Fixed Costs        102,600.00        156,400.00        259,000.00 Segmented Income        202,400.00        223,600.00        426,000.00 Common Fixed Cost          31,000.00 Income        395,000.00 Note: Allocated Fixed cost 115000 175000 Less: Common Fixed Cost 12400 18600 Segmented Fixed Cost 102600 156400

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