Problem 24-4

Help making a schedule showing contribution margin and contribution to indirect expenses using contribution margin format; making a segmental income statements (L.O. 3)

Allentown, Inc., is a company with two segments, X and Y. Its revenues and expenses for 2019 follow:

Segment X SegmentY Total

Net sales $96,000 $144,000 $240,000

Direct expenses:*

Cost of goods sold $45,000 $99,000 $144,000

Selling $13,680 $7,200 $20,880

Administrative:

Uncollectible accounts $3,000 $1,800 $4,800

Insurance $2,400 $1,200 $3,600

Interest $480 $240 $720

Indirect expenses (all fixed):

Selling $18,000(total)

Administrative $25,200(total)

*All the direct expenses are variable except insurance and interest, which are fixed.

a.

Help making a schedule showing the contribution margin, the contribution to indirect expenses of each segment, and net income for the company as a whole. *Do not allocate indirect expenses to the segments.

b.

Assume that indirect selling expenses are to be allocated on the basis of net sales and that indirect administrative expenses are to be allocated on the basis of direct administrative expenses. Help making a statement (starting with the contribution to indirect expenses) that shows the net income of each segment.

c.

Comment on the appropriateness of the income amounts shown in parts (a) and (b) for determining the income contribution of the segments.