Michaels Company segments its income statement into its East and West Divisions.
ID: 2455177 • Letter: M
Question
Michaels Company segments its income statement into its East and West Divisions. The company’s overall sales, contribution margin ratio, and net operating income are $690,000, 57%, and $52,000, respectively. The West Division’s contribution margin and contribution margin ratio are $159,000 and 79%, respectively. The East Division’s segment margin is $80,000. The company has $60,000 of common fixed costs that cannot be traced to either division. Required: Prepare an income statement for Michaels Company that uses the contribution format and is segmented by divisions..
Explanation / Answer
sales =$690,000
contribution margin ratio = 57%, contribution margin = 690000*57% = 393300
Net operating income = $52,000,, fixed cost = 60000, profit before fixed cost = 112000
West Division’s contribution margin = $159,000
contribution margin ratio = 79%,
Sales of west division = contribution margin / contribution margin ratio = 159000/0.79 = 201266
Sale of East Division’s = 690000 - 201266 = 488734
segment marginof east division = 80000, segment margin of west division = 112000 - 80000, = 32000
Income statement for Michaels Company
East division West division Company
Sales 488734 201266 690000
Contribution 234300 159000 393300
Net income 80000 32000 112000
Less: common fixed cost 60000
Net operating income 52000