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	$	311,000			$	804,000		$	704,000
Regional expenses (traceable):
Cost of goods sold		95,000				243,000			314,000
Advertising		108,000				240,000			244,000
Salaries		51,000				55,000			107,000
Utilities		8,900				16,000			14,200
Depreciation		22,000				31,000			28,000
Shipping expense		16,000				27,000			40,000
Total regional expenses		300,900				612,000			747,200
Regional income (loss) before corporate expenses		10,100				192,000			(43,200	)
Corporate expenses:
Advertising (general)		17,000				39,000			32,000
General administrative expense		19,000				19,000			19,000
Total corporate expenses		36,000				58,000			51,000
Net operating income (loss)	$	(25,900	)		$	134,000		$	(94,200	)

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 Amount % West Amount Central Amount East Amount % % % Sales Variable expenses: Cost of goods sold Total variable expenses 0 0 . 0 0 0. 0 0 0. 0 0 0.0 0 0. 00 0. 00 0. 00 0.0 Traceable fixed expenses: Total traceable fixed expenses 0 0 0 0 . 0 0 00 $ 0 0 0. 0 00 $ 0 0 0. 00 $ 0.0 0.0 0 Common fixed expenses: 0.0 Total common fixed expense Net operating income (loss) 0 0 $

Answer 1

3)

Contribution format segmented income statement:

	Total Company (a+b+c)		West (a)		Central (b)		East (c )
	Amount	%	Amount	%	Amount	%	Amount	%
Sales (a)	$1,819,000	100%	$311,000	100%	$804,000	100%	$704,000	100%
Less: Variable Expenses
Cost of Goods Sold ($652,000/$1,819,000*100); ($95,000/$311,000*100); ($243,000/$804,000*100); ($314,000/$704,000*100)	$652,000	35.8%	$95,000	30.5%	$243,000	30.2%	$314,000	44.6%
Shipping Expenses ($83,000/$1,819,000*100); ($16,000/$311,000*100); ($27,000/$804,000*100); ($40,000/$704,000*100)	$83,000	4.6%	$16,000	5.1%	$27,000	3.4%	$40,000	5.7%
Total Variable Expenses (b)	$735,000	40.4%	$111,000	35.7%	$270,000	33.6%	$354,000	50.3%
Total Contibution Margin (c = a-b) ($1,084,000/$1,819,000*100); ($200,000/$311,000*100); ($534,000/$804,000*100); ($350,000/$704,000*100)	$1,084,000	59.6%	$200,000	64.3%	$534,000	66.4%	$350,000	49.7%
Less: Traceable Fixed Expenses:
Advertising	$592,000	32.5%	$108,000	34.7%	$240,000	29.9%	$244,000	34.7%
Salaries	$213,000	11.7%	$51,000	16.4%	$55,000	6.8%	$107,000	15.2%
Utilities	$39,100	2.1%	$8,900	2.9%	$16,000	2.0%	$14,200	2.0%
Depreciation	$81,000	4.5%	$22,000	7.1%	$31,000	3.9%	$28,000	4.0%
Total traceable fixed expenses (d)	$925,100	50.9%	$189,900	61.1%	$342,000	42.5%	$393,200	55.9%
Regional Income (loss) before corporate expense (e = c-d)	$158,900	8.7%	$10,100	3.2%	$192,000	23.9%	($43,200)	-6.1%
Less: Common fixed expenses:
Advetising (general) ($17,000 + $39,000 + $32,000)	$88,000	4.8%
General administrative expense ($19,000 + $19,000 + $19,000)	$57,000	3.1%
Total common fixed expenses (f)	$145,000	8.0%
Net Operating income (loss) (e - f)	$13,900	0.8%