Most newly monthly contribution format income statement for Raven Company is provided below:
For the Month Ended May 31
Sales $900,000 100.0%
Variable expenses 408,000 45.3
Contribution 492,000 54.7
Fixed expenses 465,000 51.7
Net operating income $ 27,000 3.0%
Management is dissatisfied with company's performance and is speculating what can be done to enhance profits. By studying sales and cost records following is found out:
a. Company is divided into 2 sales territories-Central and Eastern. Central Territory recorded $400,000 in sales and $208,000 in variable expenses in May. Enduring sales and variable expenses were recorded in Eastern Territories. Fixed expenses of $160,000 and $130,000 are traceable to Central and Eastern Territories, respectively. Rest of fixed expenses are common to two territories.
b. Company is exclusive distributor for two products- Haws and Paws. Sales of Haws and Paws totalled to $100,000 and $300,000, respectively, in Central Territory during May. Variable expenses are 25% of selling price for Haws and 61% for Paws. Cost records illustrate that $60,000 of the Central Territory's fixed expense is traceable to Haws and $54,000 to Paws, with remainder common to two products.
1. Make contribution format segmented income statements, first illustrating total company broken down between sales territories and then illustrating the Central Territory broken down by product line. Demonstrate both Amount and Percent columns for company in total and for every segment.
2. After reviewing Central Territory segmented by sales territory, and determine what points exposed by this statement must be brought to management attention.
3. After viewing Central Territory segmented by product line, what points must be brought to management attention?