Chapter 7, Problem 21P

Segment Reporting and Decision-Making L07—4
Vulcan Company’s contribution format income statement for June is as follows:

 
Management is disappointed with the company’s performance and is wondering what can be done to improve profits. By examining sales and cost records, you have determined the following:
a. The company is divided into two sales territories—Northern and Southern. The Northern territory recorded $300.000 in salesand $156,000 in variable expenses during June; the remaining sales and variable expenses were recorded in the Southernterritory. Fixed expenses of $120,000 and $108,000 are traceable to the Northern and Southern territories, respectively. Therest of the fixed expenses are common to the two territories.
b. The company is the exclusive distributor for two products—Paks and Tibs. Sales of Paks and Tibs totaled $50,000 and$250,000, respectively, in the Northern territory during June. Variable expenses are 22% of the selling price for Paks and 58%for Tibs. Cost records show that $30,000 of the Northern territory’s fixed expenses are traceable to Paks and $40,000 toTibs, with the remainder common to the two products.
Required:
1. Prepare contribution format segmented income statements first showing the total company broken down between sales territories andthen showing the Northern territory broken down by product line. In addition, for the company as a whole and for each segment, showeach item on the segmented income statements as a percent of sales.
2. Look at the statement you have prepared showing the total company segmented by sales territory. What insights revealed by thisstatement should be mentioned to management?
3. Look at the statement you have prepared showing the Northern territory segmented by product lines. What insights revealed by thisstatement should be mentioned to management?