Shannon Company segments its income statement into its North

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 $600,000, 30%, and $12,000, respectively. The North Division\'s contribution margin and contribution margin ratio are $68,000 and 34%, respectively. The South Division\'s segment margin is $40,000. The company has $60,000 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).) Divisions Total Company North South Amount Amount Amount Sales ariable expenses Contribution margin Traceable fixed expenses Territorial segment margin Common fixed expenses Net operating income

Solution

SHANNON COMPANY\'S INCOME STATEMENT

     DIVISIONS

Total Company

     NORTH

SOUTH

Amount

%

Amount

%

Amount

%

Sales

6,00,000 $

100 %

2,00,000 $ (Note2)

100 %

4,00,000 $  

(Note3)

100 %

Variable Expenses

4,20,000 $ (Note1)

70 %

1,32,000$(note2)

66 %

2,88,000 $

(Note 3)

   72 %

Contribution Margin

1,80,000 $ (Note1)

30 %

    68,000 $

34 %

1,12,000 $

(Note3)

   28 %

Traceable Fixed Expenses

1,08,000 $ (Note1)

18 %

36,000$(Note 4)

18 %

72,000 $

(Note 3)

   18 %

Territorial Segment Margin

72,000 $( note1)

12 %

    32,000 $

   16 %

40,000 $

   10 %

Common Fixed Expenses

   60,000 $

10 %

Net Operating Income

   12,000 $

   2 %

Working Note 1:   Company’s Total Sales= $ 6,00,000 Contribution Margin= 0.30 Net Operating Income=$ 12,000, Common Fixed Cost= $ 60,000

        Therefore Total Variable Cost= 0.7 * 6,00,000= $ 4,20,000 and Total Contribution=1,80,000

                            Traceable Fixed Cost=Contribution-Common Fixed Exp-Net Operating Income

                                                                  =1,80,000-60,000-12,000= $ 1,08,000

    Total Segment Margins of the co=1,80,000-1,08,000-72,000=$

Working Note 2:

North Division Contribution=$ 68,000 , Contribution Margin Ratio= 34 %

Therefore Sales= Contribution *100/Contribution Margin

                                 = 68,000*100/34 = $ 2,00,000

Therefore Variable Cost= Sales*0.66= 2,00,000*0.66=$ 1,32,000

Working Note 3 : South division segment margin=$ 40,000

South division’s Sales= Total Sales- North sales=6,00,000-2,00,000= $ 4,00,000

                Similarly South’s Variable Cost=4,20,000-1,32,000= $ 2,88,000

                  South’s Contribution=4,00,000-288,000= $ 1,12,000

          South’s Traceable Fixed Cost=South’s contribution-South segment Margin

                                                                  = 1,12,000-40,000= $ 72,000

Working Note 4: North’s Traceable Fixed Exp= Total Traceable Fixed Exp-South’s traceable Fixed Exp

                                                                    = 1,08,000- 72,000 = $ 36,000

			DIVISIONS
	Total Company	NORTH	SOUTH
	Amount	%	Amount	%	Amount	%
Sales	6,00,000 $	100 %	2,00,000 $ (Note2)	100 %	4,00,000 $   (Note3)	100 %
Variable Expenses	4,20,000 $ (Note1)	70 %	1,32,000$(note2)	66 %	2,88,000 $ (Note 3)	72 %
Contribution Margin	1,80,000 $ (Note1)	30 %	68,000 $	34 %	1,12,000 $ (Note3)	28 %
Traceable Fixed Expenses	1,08,000 $ (Note1)	18 %	36,000$(Note 4)	18 %	72,000 $ (Note 3)	18 %
Territorial Segment Margin	72,000 $( note1)	12 %	32,000 $	16 %	40,000 $	10 %
Common Fixed Expenses	60,000 $	10 %
Net Operating Income	12,000 $	2 %