If a cost is a common cost of the segments on a segmented income statement, the

Question

If a cost is a common cost of the segments on a segmented income statement, the cost should:

.

Anderson Corporation has two major business segments-North and South. In July, the North 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 South 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 North business segment and $123,000 to the South business segment.

The contribution margin of the South business segment is:

Explanation / Answer

Ans If a cost is a common cost of the segments on a segmented income statement, the cost should not be allocated to segment. Common cost are those cost which cannot be traced to individual department so it cannot be allocated to segments. Anderson Corporation Divisional Income Statement For July North division South division Total Sales Revenue $                      220,000.00 $                       890,000.00 $ 1,110,000.00 Variable Expenses $                      125,000.00 $                       472,000.00 $      597,000.00 Contribution Margin=(sales-variable cost) $                        95,000.00 $                       418,000.00 $      513,000.00 Traceable Fixed expenses $                        29,000.00 $                       169,000.00 $      198,000.00 Common Fixed expenses $      246,000.00 Income from operation $                        66,000.00 $                       249,000.00 $        69,000.00 The Contribution Margin of the South business segment is $418000

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