Vulcan Company's contribution format income statement for June is 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 Net operating income $25,770 Management is disappointed with the company's 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 territories%u2014Northern and Southern. The Northern territory recorded $411,000 in sales and $209,850 in variable expenses during June; the remaining sales and variable expenses were recorded in the Southern territory. Fixed expenses of $150,000 and $120,000 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 products%u2014Paks and Tibs. Sales of Paks and Tibs totaled $105,000 and $306,000, respectively, in the Northern territory during June. Variable expenses are 25% of the selling price for Paks and 60% for Tibs. Cost records show that $57,000 of the Northern territory's fixed expenses are traceable to Paks and $50,000 to Tibs, with the remainder common to the two products. references 18. value: 19.00 points Problem 11-24 Requirement 1
Requirement 1: Prepare contribution format segmented income statements. (Round percentage computations to 1 decimal place. Negative amounts other than expenses should be indicated by a minus sign. Omit the "tiny_mce_markerquot; and "%" signs in your response.) Sales Territory Total Company Northern Southern Amount % Amount % Amount % Sales $ $ $ Variable expenses Contribution margin Traceable fixed expenses Sales territory segment margin $ $ Common fixed expenses Net operating income $ Product Line Northern Territory Paks Tibs Amount % Amount % Amount % Sales $ $ $ Variable expenses Contribution margin Traceable fixed expenses Product line segment margin $ $ Common fixed expenses Sales territory segment margin $ check my work references 19. value: 1.00 points Problem 11-24 Requirement 2
Requirement 2: Based on the above income statements, which of the following the statement(s) is true? (Select all that apply.) The high traceable fixed expenses of the Paks product may simply mean that the Paks product is not highly leveraged. The Northern territory has high traceable fixed expenses. An increase in sales of Paks product line would not greatly enhance profits in the Northern territory.
Compared to the Southern territory, the Northern territory has a low contribution margin ratio. The Northern territory has a poor sales mix. Overall, compared to the Southern territory, the Northern territory is very weak.