Problem 10-26 Shoe Shock Innovations manufactures athletic shoe inserts that cus

Question

Problem 10-26 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 Sole Inserts Division Heel Inserts Division Total Shoe Shock $496,000 2,518,000 $3,014,000 2,037,000 2,353,000 661,000 471,300 189,700 172,200 $17,500 Sales revenue 316,000 180,000 122,600 $57,400 Less variable expenses Contribution margirn Less traceable fixed expenses 481,000 348,700 $132,300 Segment margin Common fixed costs Net operating income 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 Your answer is partially correct. Try agairn Prepare a segment margin income statement for Shoe Shock's two distribution channels. (If the amount is negative then enter with a negative sign preceding the number, e.g. -5,125 or parenthesis, e.g. (5,125).)

Explanation / Answer

Speciality Footwear Stores:

Sales:

a. Sole Inserts = 20% X 496,000 = 99,200

b. Heel Inserts = 75% X 2,518,000 = 1,888,500

Variable Costs:

a. Sole Inserts = 20% X 316,000 = 63,200

b. Heel Inserts = 75% X 203,7000 = 1,527,750

Sales through Drug Stores:

a. Sole Inserts = 80% X 496,000 = 396,800

b. Heel Inserts = 25% X 2,518,000 = 629,500

Variable Costs - Drug Stores:

a. Sole Inserts = 80% X 316,000 = 252,800

b. Heel Inserts = 25% X 2,037,000 = 509,250

Fixed Costs Total = 471,300 + 172,200 = 643,500

Fixed Costs Attributable to Speciality Stores = 50% X 643,500 = 321,750

Fixed Costs Attributable to Drug Stores Stores = 45% X 643,500 = 289,575

Unattributable Fixed Costs = 5% X 643,500 = 32,175

The income statement is hence as follows:

Speciality Footwear Stores Drug Stores Total Revenue - Sole Inserts                      99,200                   3,96,800                   4,96,000 - Heel Inserts                 18,88,500                   6,29,500                 25,18,000 A. Total Revenue                 19,87,700                 10,26,300                 30,14,000 Variable Costs - Sole Inserts                     -63,200                  -2,52,800                  -3,16,000 - Heel Inserts                -15,27,750                  -5,09,250                -20,37,000 B. Total Variable Costs                -15,90,950                  -7,62,050                -23,53,000 C. Contribution Margin (A-B)                   3,96,750                   2,64,250                   6,61,000 Less: Attributable Fixed Costs                  -3,21,750                  -2,89,575                  -6,11,325 D. Segment Margin                      75,000                     -25,325                      49,675 Common Fixed Costs                  -32,175.0 E. Net Operating Income                      17,500

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