Michaels Company segments its income statement into its East and West Divisions.

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 $760,000, 60%, and $45,600, respectively. The West Division's contribution margin and contribution margin ratio are $240,000 and 75%, respectively. The East Division's segment margin is $66,000. The company has $91,200 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

Divisions Total comapny EAST WEST Amount % Amount % Amount % sales 760000 100 440000    [760000-320000] 100 320000   [24000/.75] 100 less:Variable cost -304000   [760000*.40] 40% [100-60] -224000    [304000-80000] 224000/440000 =50.91 -80000    [320000*.25] 25 contribution margin 456000 [760000*.60] 60% 216000     [440000-224000] 49.09 240000 75 less:Traceable fixed cost 319200    [456000-136800] -42 [319200/760000] 150000     [216000-66000] -34.09    [150000/440000] 169200    [240000-70800] -52.88 [169200/320000] segment margin 136800    [45600+91200] 18 66000 15 70800    [136800-66000] 22.12 less:Fixed cost -91200 -12    [91200/760000] Net income 45600 6

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