Question 1 Shoe Shock Innovations manufactures athletic shoe inserts that cushio

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Question 1 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 $493,400 $2,538,000 $3,031,400 2,009,000 2,321,000 710,400 473,000 237,400 171,800 $65,600 Sales revenue 312,000 181,400 123,400 $58,000 Less variable expenses Contribution margin Less traceable fixed expenses 529,000 349,600 $179,400 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.

Explanation / Answer

Calculations:

Total fixed costs = $473000 + $171800 = $644800

Traceable to Speciality Footwear Stores = 50% x $644800 = $322400

Traceable to Drug Stores = 45% x $644800 = $290160

Common fixed costs = 5% x $644800 = $32240

Speciality Footwear Stores Drug Stores Total Shoe Shock Sales revenue Sole Inserts Division 98680 394720 493400 Heel Inserts Division 1903500 634500 2538000 Total sales revenue 2002180 1029220 3031400 Less: Variable expenses Sole Inserts Division 62400 249600 312000 Heel Inserts Division 1506750 502250 2009000 Total variable expenses 1569150 751850 2321000 Contribution margin 433030 277370 710400 Traceable fixed expenses 322400 290160 612560 Segment margin 110630 -12790 97840 Common fixed costs 32240 Net operating income 65600

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