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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Losses have been incurred at Millard Corporation for some time. In an effort to isolate the problem and improve the company’s performance, management has requested that the monthly income statement be segmented by sales region. The company’s first effort at preparing a segmented statement is given below. This statement is for May, the most recent month of activity.

	Sales Region
	West	Central	East
Sales	$	311,000		$	803,000	$	699,000
Regional expenses (traceable):
Cost of goods sold		95,000			243,000		317,000
Advertising		103,000			244,000		235,000
Salaries		52,000			51,000		107,000
Utilities		8,800			15,600		14,400
Depreciation		25,000			31,000		27,000
Shipping expense		12,000			29,000		39,000
Total regional expenses		295,800			613,600		739,400
Regional income (loss) before corporate expenses		15,200			189,400		(40,400	)
Corporate expenses:
Advertising (general)		16,000			39,000		35,000
General administrative expense		21,000			21,000		21,000
Total corporate expenses		37,000			60,000		56,000
Net operating income (loss)	$	(21,800	)	$	129,400	$	(96,400	)

Cost of goods sold and shipping expense are both variable; other costs are all fixed. Millard Corporation is a wholesale distributor of office products. It purchases office products from manufacturers and distributes them in the three regions given above. The three regions are about the same size, and each has its own manager and sales staff. The products that the company distributes vary widely in profitability.

Required:

3. Prepare a new contribution format segmented income statement for May. Show a Total column as well as data for each region. In addition, for the company as a whole and for each sales region, show each item on the segmented income statement as a percent of sales. (Note: % columns may not total due to rounding.) Round percentage answers to 1 decimal place (i.e .1234 should be entered as 12.3).

	Total Company	West	Central	East
	Amount	%	Amount	%	Amount	%	Amount	%
Sales	$1,813,000	100.0	$311,000	100.0	$803,000	100.0	$699,000	100.0
Variable expenses:
Cost of goods sold	655,000	36.1	95,000	30.5	243,000	30.3	317,000	45.4
Shipping expense	80,000	4.4	12,000	3.9	29,000	3.6	39,000	5.6


Total variable expenses
Contribution margin	1,078,000	59.5	204,000	65.6	531,000	66.1	343,000	49.1
Traceable fixed expenses:
Salaries	210,000	11.6	52,000	16.7	51,000	6.4	107,000	15.3
Utilities	38,800	2.1	8,800	2.8	15,600	1.9	14,400	2.1
Advertising (Traceable)	582,000	32.1	103,000	33.1	244,000	30.4	235,000	33.6
Depreciation	83,000	4.6	25,000	8.0	31,000	3.9	27,000	3.9


Total traceable fixed expenses	913,800	50.4	188,800	60.7	341,600	42.5	383,400	54.8
Regional segment margin	164,200	9.1	$15,200	4.9	$189,400	23.6	$(40,400)	(5.8)
Common fixed expenses:
Advertising (general)	90,000	5.0
General Administrative expense	63,000	3.5


Total common fixed expense	153,000	8.4
Net operating income (loss)	$11,200	0.6

Answer is not complete.
Total Company
West
Central
East
Amount
Amount
Amount
Amount
%
100.0
100.0
Sales
100.0
100.0
1,813,000
699,000
311,000
803,000
Variable expenses
30.5 243,000
30.3 317,000
36.1
45.4
Cost of goods sold
655,000
95,000
80,000
3.9
3.6
39,000
5.6
Shipping expense
4.4
12,000
29,000
Total variable expenses
Contribution margin
1,078,000
65.6 531,000
66.1 343,000
59.5
49.1
204,000
Traceable fixed expenses:
52,000
16.7
6.4 107,000
Salaries
210,000
11.6
51,000
15.3
8,800
2.8
1.9
14,400
2.1
Utilities
38,800
2.1
15,600
32.1 103,000
33.1 244.000
30.4 235,000
582,000
33.6
Advertising (Traceable)
Depreciation
83,000
4.6
31,000
3.9
27,000
3.9
25,000
8.0
Total traceable fixed expenses
50.4 188,800
42.5 383,400
60.7
913,800
341,600
54.8
9.1 15,200
164,200
4.9
23.6
Regional segment margin
(5.8)
(40,400)
189,400
Common fixed expenses:
Advertising (general)
90,000
5.0
General Administrative expense
63,000
3.5
Total common fixed expense
153,000
8.4
$
Net operating income (loss)
11,200
0.6

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