Shoe Shock Innovations manufactures athletic shoe inserts that cushion the foot and reduce the impact of exercise on the joints. The company has two divisions, Sole Inserts and Heel Inserts. A segmented income statement from last month follows.

Chris Kelly is Shoe Shock's sales manager. Although this statement provides useful information, Chris wants to know how well the company's two distribution channels, specialty footwear stores and drug stores, are performing. Marketing data indicates that 20% of sole inserts and 75% of heel inserts are sold through specialty footwear stores. A recent analysis of corporate fixed costs revealed that 50% of all fixed costs are traceable to specialty footwear stores and 45% of all fixed costs to drug stores.

Required
a. Prepare a segment margin income statement for Shoe Shock's two distribution channels.
b. Based on your analysis, what recommendations would you make to thecompany?

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Sole Inserts Heel Inserts Total Shoe Shock $3,000,000 2,300,000 700,000 470,000 230,000 DIvISIon DIVISIon $500,000 300,000 Sales revenue Less variable expenses Contribution margin Less traceable fixed expenses Segment margin Common fixed costs Net operating income $2,500,000 2,000,000 500,000 350,000 $ 150,000 120,000 S 80,000 175,000 $ 55,000