J. Murphy operates two restaurants one in Greenville and one in Cleveland. He operates under the name of Murphy’s Healthy Fast Foods. Below is an income statement formatted in the traditional format. Jake would like a little more information than the traditional format provides. He has asked you, his accountant and tax advisor, to break his business down by location so that he can see the operating results of each. You know just what he needs, which is a segmented income statement.

Below is the income statement in the traditional format.

Sales………………………………………………………………..$1,000,000

Cost of goods sold…………………………………………………532,500

Gross margin…………………………………………………………467,500

Sales and administrative expenses…………………………435,000

Net operating income……………………………………………..32,500

After careful examination and the help of your old managerial text (you were wise and kept it) you have determined the following:

1. Cleveland sales are 65% of total sales.
2. Greenville sales are 35% of total sales.
3. The Cleveland variable expense ratio is 55%.
4. The Greenville variable expense ratio is 50%.
5. The traceable fixed costs to Cleveland are $260,000.
6. The traceable fixed costs to Greenville are $140,000.
7. Common fixed costs total $35,500.

Required:

1.Prepare a segmented income statement for Murphy’s Healthy Fast Foods

2. Compute the overall contribution margin ratio.

3. Compute the overall breakeven sales dollars.

4. Compute the sales dollars needed to achieve an operating profit of $50,000.

5. Prepare a segmented income statement that results in a net operating income of $50,000. Assume that variable expense ratios remain unchanged from the prior year. (hint, use the target profit formula for this.)

Answer rating: 100% (QA)

Solution 1 Product line Total Cleveland Greenville Amount Amount Amount Sales 1... View the full answer