Segment reporting and decision making ( managerial accounting)

| June 14, 2016

Question
Segment reporting and decision making ( managerial accounting)
Vulcan Company’s contribution format income statement for June is given below For the Month Ended June 30
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $750,000
Variable expenses . . . . . . . . . . . . . . . . . . . . . . . 336,000
Contribution margin . . . . . . . . . . . . . . . . . . . . . . 414,000
Fixed expenses . . . . . . . . . . . . . . . . . . . . . . . . 378,000
Net operating income
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $750,000
Variable expenses . . . . . . . . . . . . . . . . . . . . . . . 336,000
Contribution margin . . . . . . . . . . . . . . . . . . . . . . 414,000
Fixed expenses . . . . . . . . . . . . . . . . . . . . . . . . . 378,000
Net operating income . . . . . . . . . . . . . . . . . . . . $ 36,000
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 sales and $156,000 in variable expenses during June; the remaining
sales and variable expenses were recorded in the Southern territory. Fixed expenses of
$120,000 and $108,000 are traceable to the Northern and Southern territories, respectively.
The rest of the fixed expenses are common to the two territories.
Variable Costing and Segment Reporting: Tools for Management 271
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 to Tibs,
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 and then showing the Northern territory broken down
by product line. In addition, for the company as a whole and for each segment, show each 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 this statement should be brought to the attention of management?
3. Look at the statement you have prepared showing the Northern territory segmented by product
lines. What insights revealed by this statement should be brought to the attention of management?

PROBLEM 6-21
Question #1
SALES TERRITORY
Sales
Variable expenses
Contribution margin
Traceable fixed expenses
Territorial segment margin
Common fixed expenses
Net Operation Income

Total Company
Amount
%
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$#DIV/0!
$#DIV/0!
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$#DIV/0!

Northern
Amount
%
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$#DIV/0!
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$#DIV/0!

Total Company
Amount
%
$#DIV/0!
$#DIV/0!
$#DIV/0!
$#DIV/0!
$#DIV/0!
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$#DIV/0!

PAKS
Amount

Southern
Amount
%
#DIV/0!
#DIV/0!
$#DIV/0!
#DIV/0!
$#DIV/0!

yellow cells are where you put your inputs

PRODUCT LINE
Sales
Variable expenses
Contribution margin
Traceable fixed expenses
Product Line Segment Margin
Common fixed expenses
Net Operation Income

Question #2

Question #3

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%
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#DIV/0!
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#DIV/0!
#DIV/0!

TIBS
Amount

$$-

%
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!

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