Question

Shoe Shock Innovations manufactures athletic shoe inserts that cushion the foot and reduce the impact of exercise on the joints. The company has two divisions, Sole Inserts and Heel Inserts. A segmented income statement from last month follows. Sole Inserts Division Heel Inserts Division Total Shoe Shock Sales revenue $499,700 318,000 Less variable expenses $2,533,000 $3,032,700 2,049,000 2,367,000 484,000 665,700 Contribution margin 181,700 Less traceable fixed expenses 124,100 349,700 473,800 Segment margin $57,600 $134,300 191,900 Common fixed costs 174,000 Net operating income $17,900 Chris Kelly is Shoe Shock's sales manager. Although this statement provides useful information, Chris wants to know how well the company's two distribution channels, specialty footwear stores and drug stores, are performing. Marketing data indicates that 20% of sole inserts and 75% of heel inserts are sold through specialty footwear stores. A recent analysis of corporate fixed costs revealed that 50% of all fixed costs are traceable to specialty footwear stores and 45% of all fixed costs to drug stores.

Answer 1

Shoe shock innovations Drug Stores Total Shoe shock 399760 633250 1033010 499700 2533000 3032700 divided in 20:80 ) divided in 75:25) Speciality Footwear stores Revenue Sole inserts 99940 Heel inserts 1899750 Total Revenue 1999690 Less:- Variable expenses Sole inserts 63600 Heel inserts 1536750 Total Variable expenses 1600350 Contribution Margin 399340 Traceable Fixed exp. 322900 Segmented margin 75440 Common Fixed exp. Operating Income 254400 512250 766650 266360 291510 -25150 318000 ( divided in 20:80) 2049000 (divided in 75:25) 2367000 665700 615410 50290 32390 ( 647800 * 5 %) 17900 Total Fixed costs = 473800 + 174000 = 647800 Alloctaed to Spec. Footwear = 647800 * 50 % = 323900 Alloctaed to Drug stores = 647800 * 45% = 291510 Drug stores should be dropped