Question

Shannon Company segments its income statement into its North and South Divisions. The company’s overall sales, contribution margin ratio, and net operating income are $1,050,000, 40%, and $21,000, respectively. The North Division’s contribution margin and contribution margin ratio are $154,000 and 44%, respectively. The South Division’s segment margin is $175,000. The company has $262,500 of common fixed expenses that cannot be traced to either division.

Required:
Prepare an income statement for Shannon Company that uses the contribution format and is segmented by divisions. In addition, for the company as a whole and for each segment, show each item on the segmented income statements as a percent of sales. (Round your percentage answers to 1 decimal place (i.e .1234 should be entered as 12.3))

Answer 1

The student's question involves preparing a segmented income statement for Shannon Company, breaking down figures by divisions and expressing these as a percent of sales. Sales, contribution margins, and ratios for the North and South Divisions are given, alongside company-wide figures, which are used to prepare the statement.

Step-by-step explanation:

Segmented Income Statement Preparation

The student is asking for help in preparing a segmented income statement for Shannon Company, with the format showing contribution margins and percentages for each division. The total sales for Shannon Company are $1,050,000, the overall contribution margin ratio is 40%, and the net operating income is $21,000. For the North Division, we have a contribution margin of $154,000 and a contribution margin ratio of 44%. The South Division has a segment margin of $175,000, and there are common fixed expenses amounting to $262,500.

To compute the income statement, we'll start by calculating the North Division sales, which can be deduced from its contribution margin and ratio. Next, we determine the South Division sales by subtracting the North Division sales from the total company sales. After computing all necessary values, including the segment margins, we can prepare the income statement and compute each item's percentage of sales, rounding to one decimal place.

It is important to note that when segmenting an income statement, shared fixed expenses are not allocated to individual segments but are deducted separately to arrive at the company's net operating income.