Janitorial Products, Inc., manufactures two products, brooms and mops, which are sold in two territories designated by the company as East Territory and West Territory. The following income statement prepared for the company shows the product line segments.

The territorial product sales are as follows:

The direct fixed costs of brooms ($50,000) and mops ($150,000) are not identifiable with either of the two territories. The common fixed costs are partially identifiable with East Territory, West Territory, and the general administration as follows:

East Territory . . . . . . . . . . . . . . . . . $ 54,000

West Territory . . . . . . . . . . . . . . . . . 36,000

General administration . . . . . . . . . . . 30,000

Total common fixed costs . . . . . . $120,000

Required:

1. Prepare a segmented income statement by territories. The direct fixed costs of the product lines should be treated as common fixed costs on the segmented statement being prepared.

2. What is the significance of thisanalysis?

Transcribed Image Text:

Janitorial Products, Inc. Income Statement Mops Total Brooms Sales ... $1,000,000 S600,000 100% $400,000 100% Less variable expenses ... 600,000 420,000 180,000 70 45 Contribution margin .. $ 400,000 $180,000 30% $220,000 55% Less direct fixed costs .... 200,000 50,000 150,000 $ 200,000 $130,000 Segmentmargin ..... $ 70,000 Less common fixed costs 120,000 $ 80,000 Net income ..