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11 April, 08:59

Shannon Company segments its income statement into its North and South Divisions. The company's overall sales, contribution margin ratio, and net operating income are $500,000, 46%, and $10,000, respectively. The North Division's contribution margin and contribution margin ratio are $150,000 and 50%, respectively. The South Division's segment margin is $30,000. The company has $90,000 of common fixed expenses that cannot be traced to either division. Required: Prepare an income statement for Shannon Company that uses the contribution format and is segmented by divisions. In addition, for the company as a whole and for each segment, show each item on the segmented income statements as a percent of sales. (Round your percentage answers to 1 decimal place (i. e. 1234 should be entered as 12.3))

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  1. 11 April, 12:08
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    North South Total

    Sales 300,000 (D) 200,000 (E) 500,000

    Variable - 150,000 (G) - 120,000 (H) - 270,000 (B)

    Contribution 150,000 80,000 (F) 230,000 (A)

    Traceable Fixed - 80,000 (J) - 50,000 (I) - 130,000 (C)

    Business Fixed Cost - 90, 000

    Income 70,000 (K) 30,000 10, 000

    Explanation:

    On the order of how to calculate eahc value I will be explaining how to build the income statement

    bold are givens.

    (A) overal sales 500,000 and contribution margin ratio of 46%

    sales x CMR = contribution margin

    500,000 x 46% = 230,000

    (B) sales - variable cost = contribution margin

    500,000 - variable cost = 230,000

    500,000 - 246,000 = variable cost = 270,000

    (C) we need a net operating income of 10,000

    contribution - fixed cost = operating income

    contribution - tracable fixed csot - business fixed cost = operating income

    230,000 - tracable cost - 90,000 = 10,000

    230,000 - 90,000 - 10,000 = tracable cost = 130,000

    (D) and (E)

    North CMR equal to. 50 and CM equal to 150,000

    sales x CMR = CM

    sales x 0.5 = 150,000 = 150,000/0.50 = 300,000

    total sales = north sales + south sales

    total sales are 500,000 and north sales are 300,000

    500,000 - 300,000 = 200,000 south sales

    (F) total CM = north CM + South CM

    total contribution 230,000 north contribution 150,000

    230,000 - 150,000 = 80,000 contribution

    (G) (H)

    sales - variable cost = cm

    sales - cm = variable cost

    north 300,000 - 150,000 = 150,000

    south 200,000 - 80,000 = 120,000

    (I) (J)

    we know that segment margin is 30,000 for south so

    CM - fixed cost for south = 30,000

    80,000 - south fixed = 30,000

    south = 50,000

    Then we calculate tracable fixed cost for north

    total tracable cost 130,000

    south = 50,000

    130,000 - 50,000 = 80,000 fixed for north

    (K) last, we know that CM for noth is 150,000 and it has 80,000 fixed csot

    their segment income is 150,000 - 80,000 = 70,000
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