Millard Corporation is a wholesale distributor of office products. It purchases
ID: 2590516 • Letter: M
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
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.)
Sales Region
West Central East Sales $ 311,000 $ 801,000 $ 702,000 Regional expenses (traceable): Cost of goods sold 93,000 244,000 316,000 Advertising 105,000 239,000 241,000 Salaries 55,000 51,000 115,000 Utilities 9,100 16,000 14,000 Depreciation 18,000 30,000 26,000 Shipping expense 15,000 25,000 45,000 Total regional expenses 295,100 605,000 757,000 Regional income (loss) before corporate expenses 15,900 196,000 (55,000 ) Corporate expenses: Advertising (general) 18,000 40,000 36,000 General administrative expense 22,000 22,000 22,000 Total corporate expenses 40,000 62,000 58,000 Net operating income (loss) $ (24,100 ) $ 134,000 $ (113,000 )Explanation / Answer
Solution:
Contribution format segmented income statement for May
Particulars
Sales Region (Amounts and Percentages)
West ($)
%
Central ($)
%
East ($)
%
Sales
311,000
100
801,000
100
702,000
100
Variable expenses:
Cost of goods sold
93,000
29.9
244,000
30.5
316,000
45.0
Shipping expense
15,000
4.8
25,000
3.1
45,000
6.4
Total variable expenses
108,000
34.7
269,000
33.6
361,000
51.4
Contribution margin (Sales –total variable expenses)
203,000
65.3
532,000
66.4
341,000
48.6
Regional Traceable fixed expenses:
Advertising
105,000
33.8
239,000
29.8
241,000
34.3
Salaries
55,000
17.7
51,000
6.4
115,000
16.4
Utilities
9,100
2.9
16,000
2.0
14,000
2.0
Depreciation
18,000
5.8
30,000
3.7
26,000
3.7
Total regional traceable fixed expenses
187,100
60.2
336,000
41.9
396,000
56.4
Regional segment margin (Income or loss)
(Contribution margin – total regional traceable fixed expenses)
15,900
5.1
196,000
24.5
(55,000)
(7.8)
Corporate fixed expenses:
Advertising (general)
18,000
5.8
40,000
5.0
36,000
5.1
General administrative expense
22,000
7.1
22,000
2.8
22,000
3.2
Total Corporate fixed expenses
40,000
12.9
62,000
7.8
58,000
8.3
Net operating income (Loss)
(24,100)
(7.8)
134,000
16.7
(113,000)
(16.1)
Particulars
Sales Region (Amounts and Percentages)
West ($)
%
Central ($)
%
East ($)
%
Sales
311,000
100
801,000
100
702,000
100
Variable expenses:
Cost of goods sold
93,000
29.9
244,000
30.5
316,000
45.0
Shipping expense
15,000
4.8
25,000
3.1
45,000
6.4
Total variable expenses
108,000
34.7
269,000
33.6
361,000
51.4
Contribution margin (Sales –total variable expenses)
203,000
65.3
532,000
66.4
341,000
48.6
Regional Traceable fixed expenses:
Advertising
105,000
33.8
239,000
29.8
241,000
34.3
Salaries
55,000
17.7
51,000
6.4
115,000
16.4
Utilities
9,100
2.9
16,000
2.0
14,000
2.0
Depreciation
18,000
5.8
30,000
3.7
26,000
3.7
Total regional traceable fixed expenses
187,100
60.2
336,000
41.9
396,000
56.4
Regional segment margin (Income or loss)
(Contribution margin – total regional traceable fixed expenses)
15,900
5.1
196,000
24.5
(55,000)
(7.8)
Corporate fixed expenses:
Advertising (general)
18,000
5.8
40,000
5.0
36,000
5.1
General administrative expense
22,000
7.1
22,000
2.8
22,000
3.2
Total Corporate fixed expenses
40,000
12.9
62,000
7.8
58,000
8.3
Net operating income (Loss)
(24,100)
(7.8)
134,000
16.7
(113,000)
(16.1)