WGS205H5 Lecture : Lecture 4
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Vulcan Company's contribution format income statement for Juneis given below:
Vulcan Company Income Statement For the Month Ended June 30 | |
Sales | $859,000 |
Variable expenses | 396,858 |
Contribution margin | 462,142 |
Fixed expenses | 436,372 |
Netoperating income | $25,770 |
Management isdisappointed with the company's performance and is wondering whatcan be done to improve profits. By examining sales and costrecords, you have determined the following: |
a. | The company is divided into two salesterritories%u2014Northern and Southern. The Northern territoryrecorded $411,000 in sales and $209,850 in variable expenses duringJune; the remaining sales and variable expenses were recorded inthe Southern territory. Fixed expenses of $150,000 and $120,000 aretraceable to the Northern and Southern territories, respectively.The rest of the fixed expenses are common to the twoterritories. |
b. | The company is the exclusive distributor for twoproducts%u2014Paks and Tibs. Sales of Paks and Tibs totaled$105,000 and $306,000, respectively, in the Northern territoryduring June. Variable expenses are 25% of the selling price forPaks and 60% for Tibs. Cost records show that $57,000 of theNorthern territory's fixed expenses are traceable to Paks and$50,000 to Tibs, with the remainder common to the two products. |
19.00 points
Problem 11-24 Requirement 1
Requirement 1: |
Prepare contribution format segmented incomestatements. (Roundpercentage computations to 1 decimal place. Negative amounts otherthan expenses should be indicated by a minus sign. Omit the "$" and"%" signs in your response.) |
Sales Territory | ||||||
Total Company | Northern | Southern | ||||
Amount | % | Amount | % | Amount | % | |
Sales | $ | $ | $ | |||
Variable expenses |
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Contribution margin |
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Traceable fixed expenses |
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Sales territory segment margin | $ |
| $ |
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Common fixed expenses | ||||||
Netoperating income | $ |
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Product Line | ||||||
Northern Territory | Paks | Tibs | ||||
Amount | % | Amount | % | Amount | % | |
Sales | $ | $ | $ | |||
Variable expenses |
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Contribution margin | ||||||
Traceable fixed expenses |
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Product line segment margin | $ |
| $ |
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Common fixed expenses | ||||||
Sales territory segment margin | $ |
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1.00 points
Problem 11-24 Requirement 2
Requirement 2: |
Based on the above incomestatements, which of the following the statement(s) is true?(Select all thatapply.) |
The high traceable fixed expenses of the Paksproduct may simply mean that the Paks product is not highlyleveraged. | |
The Northern territory has high traceable fixedexpenses. | |
An increase in sales of Paks product line wouldnot greatly enhance profits in the Northern territory. | |
Compared to the Southern territory, the Northernterritory has a low contribution margin ratio. | |
The Northern territory has a poor salesmix. | |
Overall, compared to the Southern territory, theNorthern territory is very weak. |