Problem 6-21 Segment Reporting and Decision-Making [LO6-4]

Vulcan Company’s contribution format income statement for Juneis as follows:

Vulcan Company Income Statement For the Month Ended June 30
Sales	$	900,000
Variable expenses		400,000
Contribution margin		500,000
Fixed expenses		450,000
Net operating income	$	50,000

Management is disappointed with the company’s performance and iswondering what can be done to improve profits. By examining salesand cost records, you have determined the following:

1. The company is divided into two sales territories—Northern andSouthern. The Northern Territory recorded $500,000 in sales and$200,000 in variable expenses during June; the remaining sales andvariable expenses were recorded in the Southern Territory. Fixedexpenses of $245,000 and $88,000 are traceable to the Northern andSouthern Territories, respectively. The rest of the fixed expensesare common to the two territories.

2. The company is the exclusive distributor for two products—Paksand Tibs. Sales of Paks and Tibs totaled $250,000 and $250,000,respectively, in the Northern territory during June. Variableexpenses are 21% of the selling price for Paks and 59% for Tibs.Cost records show that $102,500 of the Northern Territory’s fixedexpenses are traceable to Paks and $52,500 to Tibs, with theremainder common to the two products.

Required:

1-a. Prepare contribution format segmented income statements forthe total company broken down between sales territories.

1-b. Prepare contribution format segmented income statements forthe Northern Territory broken down by product line.