Cost Management
Cost Management
8th Edition
ISBN: 9781259917028
Author: BLOCHER, Edward
Publisher: Mcgraw-hill Education,
Question
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Chapter 18, Problem 62P
To determine

Draft a contribution income statement for CWI.

Expert Solution & Answer
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Explanation of Solution

Prepare a contribution income statement for CWI.

ParticularsTotal ($)Not allocated ($)Boston ($)Hartford ($)
Net sales12,900,000 $5,875,0007,025,000
Variable cost    
COGS7,880,500 3,525,000 (1)4,355,500
Operating cost3,799,750 1,762,500 (4)2,037,250
Total variable cost11,680,250 5,287,5006,392,750
Contribution margin1,219,750 587,500632,250
Less: Controllable fixed cost (6)475,00047,500213,750213,750
Controllable margin744,750 373,750418,500
Less: Non controllable fixed cost (8)375,00037,500150,000187,500
Contribution by profit center369,75085,000223,750231,000
Less: Non traceable costs325,000   
Operating income44,750   

Table (1)

Breakdown of Hartford’s contribution:

ParticularsHartford ($)Not allocated ($)Clothing ($)Cycle & Run ($)
Net sales (2)7,025,000 4,215,0002,810,000
Variable cost    
COGS (3)4,355,500 2,950,5001,405,000
Variable operating cost (5)2,037,250 1,053,750983,500
Contribution margin632,250 210,750421,500
Controllable fixed cost (7)213,75042,750106,87564,125
Controllable margin418,500 103,875357,375
Non controllable fixed costs (9)187,50018,750103,12565,625
Contribution by profit center231,00061,500750291,750

Table (2)

Working notes:

1) Calculate the cost of goods sold (Boston): 

Cost of goods sold (Boston)=(60% of boston's sales)=(5,875,000×60%)=$3,525,000

2) Calculate the sales of Hartford clothing and cycle:

For Hartford clothing’s sale:

Sales of hartford clothing=(60% of hartford sales)=($7,025,000×60%)=$4,215,000

For Hartford cycle’s sale:

Sales of hartford cycle=(60% of hartford sales)=($7,025,000×40%)=$2,810,000

3) Calculate the cost of goods sold (Hartford):

For cost of goods sold of Hartford clothing:

[Cost of goods sold (Hartford clothing)]=(70% of Hartford clothing's sales)=($4,215,000×70%)=$2,950,500

For cost of goods sold of Hartford cycle:

[Cost of goods sold (Hartford cycle)]=(50% of Hartford cycle's sale)=($2,810,000×50%)=$1,405,000

4) Calculate the variable operating cost of Boston:

Operating cost (Boston)=(30% of Boston's sales)=($5,875,000×30%)=$1,762,500

5) Calculate the operating cost of Hartford:

For Hartford clothing:

(Operating cost of Hartford clothing)=(25% of Hartford clothing's sales)=($4,215,000×25%)=$1,053,750

For Hartford cycle:

(Operating cost of Hartford cycle)=(35% of Hartford cycle's sales)=($2,810,000×35%)=$983,500

6) Calculate the fixed controllable cost:

For Boston:

(Controllable fixed cost of boston)=(45% of total cost)=($475,000×45%)=$213,750

For Hartford:

(Controllable fixed cost of Hartford)=(45% of total cost)=($475,000×45%)=$213,750

Not allocated:

(Controllable fixed cost not allocated)=(10% of total cost)=($475,000×10%)=$47,500

7) Calculate the fixed controllable cost of Hartford clothing and cycle:

For Hartford clothing:

(Controllable fixed cost of Hartford clothing)=(50% of total cost)=($213,750×50%)=$106,875

For Hartford cycles:

(Controllable fixed cost of Hartford cycle)=(30% of total cost)=($213,750×30%)=$64,125

Not allocated:

(Controllable fixed cost not allocated)=(20% of total cost)=($213,750×20%)=$42,750

8) Calculate the non-controllable fixed cost:

For Boston:

(Non controllable fixed cost of boston)=(40% of total cost)=($375,000×40%)=$150,000

For Hartford:

(Non controllable fixed cost of Hartford)=(50% of total cost)=($375,000×50%)=$187,500

Not allocated:

(Non controllable fixed cost not allocated)=(10% of total cost)=($375,000×10%)=$37,500

9) Calculate the fixed non-controllable cost of Hartford clothing and cycle:

For Hartford clothing:

(Non controllable fixed cost of Hartford clothing)=(55% of total cost)=($187,500×55%)=$103,125

For Hartford cycle:

(Non controllable fixed cost of Hartford cycle)=(35% of total cost)=($187,500×35%)=$65,625

Not allocated:

(Non controllable fixed cost not allocated)=(10% of total cost)=($187,500×10%)=$18,750

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