10.26 (LO 2) Segment margin income statement 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.

Sole Inserts Division Heel Inserts Division Total Shoe Shock

Sales revenue $600,000 $2,500,000 $3,100,000

Less variable expenses 408,000 2,000,000 2,408,000

Contribution margin 192,000 500,000 692,000

Less traceable fixed expenses 120,000 350,000 470,000

Segment margin $72,000 $150,000 222,000

Common fixed costs 175,000

Net operating income $47,000

Chris Kelly is Shoe Shocks sales manager. Although this statement provides useful information, Chris wants to know how well the companys two distribution channels, specialty footwear stores and drug stores, are performing. Marketing data indicates that 35% of sole inserts and 60% of heel inserts are sold through specialty footwear stores. A recent analysis of corporate fixed costs revealed that 40% of all fixed costs are traceable to specialty footwear stores and 55% of all fixed costs to drug stores.

a. Prepare a segment margin income statement for Shoe Shocks two distribution channels.

b. Based on your analysis, what recommendations would you make to the company?