ACC 132 Study Guide - Quiz Guide: Contribution Margin, Kroger, Fixed Cost
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Diego Company manufactures one product that is sold for $70 per unit in two geographic regionsâthe East and West regions. The following information pertains to the companyâs first year of operations in which it produced 41,000 units and sold 36,000 units. Variable costs per unit: Manufacturing: Direct materials $ 20 Direct labor $ 10 Variable manufacturing overhead $ 2 Variable selling and administrative $ 4 Fixed costs per year: Fixed manufacturing overhead $ 984,000 Fixed selling and administrative expenses $ 308,000 The company sold 26,000 units in the East region and 10,000 units in the West region. It determined that $150,000 of its fixed selling and administrative expenses is traceable to the West region, $100,000 is traceable to the East region, and the remaining $58,000 is a common fixed cost. The company will continue to incur the total amount of its fixed manufacturing overhead costs as long as it continues to produce any amount of its only product.
| 13. | Prepare a contribution format segmented income statement that includes a Total column and columns for the East and West regions. INCOME STATEMENT
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14. Diego is considering eliminating the West region because an internally generated report suggests the regionâs total gross margin in the first year of operations was $10,000 less than its traceable fixed selling and administrative expenses. Diego believes that if it drops the West region, the East region's sales will grow by 6% in Year 2. Using the contribution approach for analyzing segment profitability and assuming all else remains constant in Year 2, what would be the profit impact of dropping the West region in Year 2? Profit will _____ by _____
15. Assume the West region invests $31,000 in a new advertising campaign in Year 2 that increases its unit sales by 20%. If all else remains constant, what would be the profit impact of pursuing the advertising campaign? Profit will _____ by _____
| Vulcan Companyâs contribution format income statement for June is given below: |
| Vulcan Company Income Statement For the Month Ended June 30 | ||||
| Sales | $ | 900,000 | ||
| Variable expenses | 400,000 | |||
| Contribution margin | 500,000 | |||
| Fixed expenses | 475,000 | |||
| Net operating income | $ | 25,000 | ||
| Management is disappointed with the companyâs 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 territoriesâNorthern and Southern. The Northern Territory recorded $400,000 in sales and $160,000 in variable expenses during June; the remaining sales and variable expenses were recorded in the Southern Territory. Fixed expenses of $176,000 and $140,000 are traceable to the Northern and Southern Territories, respectively. The rest of the fixed expenses are common to the two territories. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| b. | The company is the exclusive distributor for two productsâPaks and Tibs. Sales of Paks and Tibs totaled $140,000 and $260,000, respectively, in the Northern territory during June. Variable expenses are 27% of the selling price for Paks and 47% for Tibs. Cost records show that $67,200 of the Northern Territoryâs fixed expenses are traceable to Paks and $57,200 to Tibs, with the remainder common to the two products. 1.) Prepare contribution format segmented income statements for the total company broken down between sales territories. (Round the percentage answers to one decimal place (i.e .1234 should be entered as 12.3))
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2.)
| Prepare contribution format segmented income statements for the Northern Territory broken down by product line. (Round the percentage answers to one decimal place (i.e .1234 should be entered as 12.3))
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Michaels Company segments its income statement into its East andWest Divisions. The companyâs overall sales, contribution marginratio, and net operating income are $610,000, 51%, and $53,000,respectively. The West Divisionâs contribution margin andcontribution margin ratio are $157,000 and 74%, respectively. TheEast Divisionâs segment margin is $77,000. The company has $54,000of common fixed costs that cannot be traced to either division.
| Required: |
Prepare an income statement for Michaels Company that uses thecontribution format and is segmented by divisions. (Inputall amounts as positive values except losses which should beindicated by a minus sign. Round your percentage answers to 1decimal place and all other answers to the nearest dollaramount.) |
Divisions | ||||||
Total Company | East | West | ||||
| Amount | % | Amount | % | Amount | % | |
| (Click to select)Variable expensesContributionmarginTraceable fixed expensesTerritorial segment marginNetoperating income (loss)SalesCommon fixed expenses | $ | $ | $ | |||
| (Click to select)Variable expensesSalesTerritorialsegment marginCommon fixed expensesTraceable fixedexpensesContribution marginNet operating income (loss) | ||||||
| (Click to select)Gross marginContribution margin | ||||||
| (Click to select)Traceable fixed expensesNet operatingincome (loss)Territorial segment marginCommon fixedexpensesSalesVariable expensesContribution margin | ||||||
| (Click to select)Territorial segment marginTraceablefixed expensesCommon fixed expensesVariable expensesContributionmarginNet operating income (loss)Sales | $ | $ | ||||
| (Click to select)Traceable fixed expensesNet operatingincome (loss)SalesCommon fixed expensesTerritorial segmentmarginContribution marginVariable expenses | ||||||
| (Click to select)Net operating incomeNet operatingloss | $ | |||||
