Income Statements Segmented by Territory Script, Inc., has two product lines. Th
ID: 2533151 • Letter: I
Question
Income Statements Segmented by Territory
Script, Inc., has two product lines. The September income statements of each product line and the company are as follows:
SCRIPT, INC. Product Line and Company Income Statements For Month of September
Pens and pencils are sold in two territories, Florida and Alabama, as follows:
The preceding common fixed expenses are traceable to each territory as follows:
Alabama fixed expenses 3,000
Home office administration fixed expenses 1,000
Total common fixed expenses $6,000
The direct fixed expenses of pens, $7,000, and of pencils, $6,000, cannot be identified with either territory. The company's accountants were unable to allocate any of the common fixed expenses to the various segments.
Prepare income statements segmented by territory for September, including a column for the entire firm. Do not use negative signs with your answers.
Script, Inc. Territory and Company Income Statements For the Month of September
Common fixed expenses:
b) Why are the direct expenses of one type of segment report not necessarily the direct expenses of another type of segment report?
Pens Pencils Total Sales $25,000 $30,000 $55,000 Less variable expenses(10,000)
(12,000) (22,000) Contribution margin 15,000 18,000 33,000 Less direct fixed expenses (7,000) (6,000 (13,000) Product margin $8,000 $12,000 $20,000 Less common fixed expenses (6,000) Net income $14,000
Explanation / Answer
(a).
Script, Inc. Territory and Company Income Statements For the Month of September
Florida
Alabama
Company Total
Sales;
Pens
$18000
$7000
$25000
Pencils
$6000
$24000
$30000
Total sales
$24000
$31000
$55000
Less: Variable costs;
Pens
$7200
$2800
$10000
Pencils
$2400
$9600
$12000
Total variable costs
$9600
$12400
$22000
Contribution margin
$14400
$18600
$33000
Less: Direct fixed expenses
$2000
$3000
$5000
Territory margin
$12400
$15600
$28000
Less: Common fixed expenses;
Pens
$7000
Pencils
$6000
Home office
$1000
Total common fixed expenses
$14000
Net income
$14000
Working Note;
1. Variable costs are classified as follow;
For Florida:
Pens ($10000 * 18000 / 25000) = $7200
Pencils ($12000 * 6000 / 30000) = $2400
For Alabama:
Pens ($10000 * 7000 / 25000) = $2800
Pencils ($12000 * 24000 / 30000) = $9600
(b).
Answer is option (Because costs that may be directly traceable to one segment base (i.e., territory) may not be directly traceable to another segment base (i.e., product).
Explanation;
It is true that some costs may be directly traceable to one segment but may not be traceable to other segment that is why direct expenses of one type of segment report not necessarily the direct expenses of another type of segment report.
Script, Inc. Territory and Company Income Statements For the Month of September
Florida
Alabama
Company Total
Sales;
Pens
$18000
$7000
$25000
Pencils
$6000
$24000
$30000
Total sales
$24000
$31000
$55000
Less: Variable costs;
Pens
$7200
$2800
$10000
Pencils
$2400
$9600
$12000
Total variable costs
$9600
$12400
$22000
Contribution margin
$14400
$18600
$33000
Less: Direct fixed expenses
$2000
$3000
$5000
Territory margin
$12400
$15600
$28000
Less: Common fixed expenses;
Pens
$7000
Pencils
$6000
Home office
$1000
Total common fixed expenses
$14000
Net income
$14000