Question

Creaston Limited’s most recent monthly contribution format income statement is given below:
Management is disappointed with the company’s performance and is wondering what can be done to improve profits. By examining sales and cost records, you have determined the following:
a. The company is divided into two sales territories—Central and Eastern. Central Territory recorded $400,000 in sales and $208,000 in variable expenses during May. The remaining sales and variable expenses were recorded in Eastern Territory. Fixed expenses of $160,000 and $130,000 are traceable to Central and Eastern Territories, respectively. The rest of the fixed expenses are common to the two territories.
b. The company is the exclusive distributor for two products—Kiks and Dows. Sales of Kiks and Dows totalled $100,000 and $300,000, respectively, in Central Territory during May. Variable expenses are 25% of the selling price for Kiks and 61% for Dows. Cost records show that $60,000 of Central Territory’s fixed expenses are traceable to Kiks and $54,000 to Dows, with the remainder common to the two products.
Required:
1. Prepare contribution format segmented income statements, first showing the total company broken down between sales territories and then showing Central Territory broken down by product line. Show both Amount and Percentage columns for the company in total and for each segment. Round percentage computations to one deci- mal place.
2. Look at the statement you have prepared showing the total company segmented by sales territory. Which points revealed by this statement should be brought to management’s attention?
3. Look at the statement you have prepared showing Central Territory segmented by product lines. Which points revealed by this statement should be brought to management’s attention?


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  • CreatedJuly 08, 2015
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