Allentown, Inc., is a company with two segments, X and Y. Its revenues and expen

Question

Allentown, Inc., is a company with two segments, X and Y. Its revenues and expenses for 2014 follow: Segment X Segment Y Total Net Sales $96,000 $144,000 $240,00 Direct Expenses: Cost of goods sold 45,000 99,000 144,000 Selling 13,680 7,200 20,880 Administrative: Uncollectible accounts 3,000 1,800 4,800 Insurance 2,400 1,200 3,600 Interest 480 240 720 Indirect Expenses (all fixed): Selling 18,000 Administrative: 25,200 a) Prepare a schedule showing the contribution margin, the contribution to indirect expenses of each segment, and net income for the company as a whole. Do not allocate indirect expenses to the segments. b) Assume that indirect selling expenses are to be allocated on the basis of net sales and thatindirect administrative expenses. Prepare a statement (starting with the contribution to indirect expenses) that shows the net income of each segment. c) Comment on the appropriateness of the income amounts shown in part a and b for determining the income contribution of the segments. Allentown, Inc., is a company with two segments, X and Y. Its revenues and expenses for 2014 follow: Segment X Segment Y Total Net Sales $96,000 $144,000 $240,00 Direct Expenses: Cost of goods sold 45,000 99,000 144,000 Selling 13,680 7,200 20,880 Administrative: Uncollectible accounts 3,000 1,800 4,800 Insurance 2,400 1,200 3,600 Interest 480 240 720 Indirect Expenses (all fixed): Selling 18,000 Administrative: 25,200 a) Prepare a schedule showing the contribution margin, the contribution to indirect expenses of each segment, and net income for the company as a whole. Do not allocate indirect expenses to the segments. b) Assume that indirect selling expenses are to be allocated on the basis of net sales and thatindirect administrative expenses. Prepare a statement (starting with the contribution to indirect expenses) that shows the net income of each segment. c) Comment on the appropriateness of the income amounts shown in part a and b for determining the income contribution of the segments.

Explanation / Answer

Description Segment - X Segment - Y Total Net Sales            96,000        1,44,000        2,40,000 Direct Expenses Cost of Goods Sold            45,000            99,000        1,44,000 Selling            13,680              7,200            20,880            58,680        1,06,200        1,64,880 Gross Margin            37,320            37,800            75,120 Administrative Uncollectable Accounts               3,000              1,800              4,800 Insurance               2,400              1,200              3,600 Interest                  480                  240                  720               5,880              3,240              9,120 Contribution to Indirect Expenses            31,440            34,560            66,000 Indirect Expenses (Fixed) Selling            18,000 Administrative Expenses            25,200 Total            43,200 Net Income of the Company            22,800 Description Segment - X Segment - Y Total Net Sales            96,000        1,44,000        2,40,000 Direct Expenses Cost of Goods Sold            45,000            99,000        1,44,000 Selling            13,680              7,200            20,880            58,680        1,06,200        1,64,880 Gross Margin            37,320            37,800            75,120 Administrative Uncollectable Accounts               3,000              1,800              4,800 Insurance               2,400              1,200              3,600 Interest                  480                  240                  720 Total               5,880              3,240              9,120 Distribution of Indirect expenses Selling               7,200            10,800            18,000 Administrative            10,080            15,120            25,200 Total            17,280            25,920            43,200 Net Income            14,160              8,640            22,800 Contribution to Net Income of the company is more from Segment Y than Segment X After Distribution of Fixed Selling and Administrative expenses Net Income of Segment X is more than Segment Y

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