Exercise 6-7 Segmented Income Statement [LO6-4] Shannon Company segments its inc

Question

Exercise 6-7 Segmented Income Statement [LO6-4]

Shannon Company segments its income statement into its North and South Divisions. The company’s overall sales, contribution margin ratio, and net operating income are $700,000, 50%, and $56,000, respectively. The North Division’s contribution margin and contribution margin ratio are $217,500 and 75%, respectively. The South Division’s segment margin is $60,000. The company has $84,000 of common fixed expenses that cannot be traced to either division.

Prepare an income statement for Shannon Company that uses the contribution format and is segmented by divisions. (Round your percentage answers to 1 decimal place (i.e .1234 should be entered as 12.3))

Exercise 6-9 Variable and Absorption Costing Unit Product Costs and Income Statements [LO6-1, LO6-2, LO6-3]

Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations:

During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company’s product is $60 per unit.

Compute the unit product cost for year 1 and year 2.

Prepare an income statement for year 1 and year 2.

Compute the unit product cost for year 1 and year 2. (Round your answer to 2 decimal places.)

Prepare an income statement for year 1 and year 2. (Round your intermediate calculations to 2 decimal places.)

Reconcile the difference between variable costing and absorption costing net operating income in year 1 and year 2.

Shannon Company segments its income statement into its North and South Divisions. The company’s overall sales, contribution margin ratio, and net operating income are $700,000, 50%, and $56,000, respectively. The North Division’s contribution margin and contribution margin ratio are $217,500 and 75%, respectively. The South Division’s segment margin is $60,000. The company has $84,000 of common fixed expenses that cannot be traced to either division.

Explanation / Answer

Shannon company Income statement overall north div south div Sales 700,000 290000 410,000 less :Variable costs 350,000 72500 277,500 Contribution 350,000 217,500 132,500 less:Fixed expenses that can be traced 210,000 137,500 72,500 Segment margin 140,000 80,000 60,000 less:fixed expenses that cannot be traced 84,000 Net operating income 56,000 unit product cost a. Year 1 Year 2 unit product cost 45 45 notes Direct materials 25 direct labor 15 Variable manufacturing overhead 5 unit product cost 45 b. income statement year 1 year 2 Sales (40000*54);(50000*54) 2400000 3000000 Variable expenses Variable cost of goods sold 1800000 2250000 Variable selling and adm 80000 100000 total variable expense 1880000 2350000 Contribution margin 520000 650000 Fixed expense Fixed manufacturing overhead 250,000 250,000 Fixed selling & adm expense 80,000 80,000 total fixed expense 330,000 330,000 Net income 190,000 320,000 2) unit product cost a) Year 1 Year 2 unit product cost 50 51.25 notes year 1 year 2 Direct materials 25 25 direct labor 15 15 Variable manufacturing overhead 5 5 FMOH (250,000/50,000)….(250,000/40000) 5 6.25 unit product cost 50 51.25 b) income statement year 1 year 2 Sales 2400000 3000000 cost of goods sold 2000000 2550000 Gross margin 400000 450000 Selling and administrative expense 160,000 180,000 Net income 240,000 270000 cost of goods sold for year 2 (10,000*50+40000*51.25) 3) Reconcilaition year 1 year 2 Variable costing net operating income (loss) 190,000 320,000 add:Deferrred fixed overhead in ending inventory (10000*5) 50,000 less:Fixed overhead realeased in beginning inventory(10000*5) -50,000 Absoption costing net operatin income (loss) 240,000 270,000

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