Question

Millard Corporation is a wholesale distributor of office products. It purchases office products from manufacturers and distributes them in the West, Central, and East regions. Each of these regions is about the same size and each has its own manager and sales staff.

The company has been experiencing losses for many months. In an effort to improve performance, management has requested that the monthly income statement be segmented by sales region. The company’s first effort at preparing a segmented income statement for May is given below.

	Sales Region
	West				Central			East
Sales	$	312,000			$	800,000		$	697,000
Regional expenses (traceable):
Cost of goods sold		99,000				236,000			318,000
Advertising		104,000				239,000			240,000
Salaries		50,000				54,000			111,000
Utilities		8,800				15,800			14,200
Depreciation		23,000				30,000			29,000
Shipping expense		15,000				25,000			41,000
Total regional expenses		299,800				599,800			753,200
Regional income (loss) before corporate expenses		12,200				200,200			(56,200	)
Corporate expenses:
Advertising (general)		14,000				40,000			35,000
General administrative expense		19,000				19,000			19,000
Total corporate expenses		33,000				59,000			54,000
Net operating income (loss)	$	(20,800	)		$	141,200		$	(110,200	)

The cost of goods sold and shipping expense are both variable. All other costs are fixed.

Required:

3. Prepare a new contribution format segmented income statement for May. (Round percentage answers to 1 decimal place.)

Total Company West Central East Amount % Amount % Amount % Amount % Sales $1,809,000 100.0 $312,000 100.0 $800,000 100.0 $697,000 100.0 Variable expenses: Cost of goods sold 653,000 99,000 236,000 318,000 Shipping expense 81,000 15,000 25,000 41,000 Total variable expenses 734,000 0.0 114,000 0.0 261,000 0.0 359,000 0.0 Contribution margin 1,075,000 100.0 198,000 100.0 539,000 100.0 338,000 100.0 Traceable fixed expenses: Advertising 583,000 104,000 239,000 240,000 Salaries 215,000 50,000 54,000 111,000 Utilities 37,200 8,000 15,000 14,200 Depreciation Total traceable fixed expenses 835,200 0.0 162,000 0.0 308,000 0.0 365,200 0.0 Regional segment margin 239,800 100.0 $36,000 100.0 $231,000 100.0 $(27,200) 100.0 Common fixed expenses: Advertising General administrative Total common fixed expense 0 0.0 Net operating income (loss) $239,800 100.0

Answer 1

	Total Company		West		Central		East
	Amount	%	Amount	%	Amount	%	Amount	%
Sale	$1,809,000	99.78%	$312,000	100.00%	$800,000	99.50%	$697,000	100.00%
Variable expense
Cost of goods sold	$653,000	36.02%	$99,000	31.73%	$236,000	29.35%	$318,000	45.62%
Shipping expense	$81,000	4.47%	$15,000	4.81%	$25,000	3.11%	$41,000	5.88%
Total variable expense	$734,000	40.49%	$114,000	36.54%	$261,000	32.46%	$359,000	51.51%
Contribution margin	$1,075,000	59.29%	$198,000	63.46%	$539,000	67.04%	$338,000	48.49%
Traceble fixed expense
Advertising	$583,000	32.16%	$104,000	33.33%	$239,000	29.73%	$240,000	34.43%
Salaries	$215,000	11.86%	$50,000	16.03%	$54,000	6.72%	$111,000	15.93%
Utilities	$38,800	2.14%	$8,800	2.82%	$15,800	1.97%	$14,200	2.04%
Depreciation	$82,000	4.52%	$23,000	7.37%	$30,000	3.73%	$29,000	4.16%
Total Traceble fixed expense	$918,800	50.68%	$185,800	59.55%	$338,800	42.14%	$394,200	56.56%
Regional Segment Margin	$156,200	8.62%	$12,200	3.91%	$200,200	24.90%	-$56,200	-8.06%
Common Fixed expense
Advertising General	$89,000.00
General Administrative expense	$57,000.00
Total Common fixed expense	$146,000.00
Net Operating income/loss	$10,200.00