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 $480,000, 36%, and $9,600, respectively. The North Division’s contribution margin and contribution margin ratio are $92,000 and 40%, respectively. The South Division’s segment margin is $32,500. The company has $62,400 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. 0.1234 should be entered as 12.3

Answer 1

Shannon Company

Segmented Income Statement

Total Company North South

Division Division

Total sales 480,000 100% 230,000 47.9% 250,000 52.1%

Variable costs 307,200 100% 138,000 44.9% 169,200 55.1%

Contribution margin 172,800 100% 92,000 53.2% 80,800 46.8%

Traceable fixed 100,800 100% 52,500 52.1% 48,300 47.9%

Segment income 72,000 100% 39,500 54.9% 32,500 45.1%

Common fixed 62,400 100%

Net income 9,600 100%

North's total sales = $92,000 / 40% = $230,000

South's total sales = $480,000 - $230,000 = $250,000

South's contribution margin = $172,800 - $92,000 = $80,800

Total segment income = common fixed + net income = $62,400 + $9,600 = $72,000