Question

Script, Inc., has two product lines. The September income statements of each product line and the company are as follows: SCRIPT, INC. Product Line and Company Income Statements For Month of September Pens Pencils Total Sales $30,000 $30,000 $60,000 Less variable expenses (12,000) (12,000) (24,000) Contribution margin 18,000 18,000 36,000 Less direct fixed expenses (9,000) (7,000) (16,000) Product margin $9,000 $11,000 20,000 Less common fixed expenses (6,000) Net income $14,000Pens and pencils are sold in two territories, Florida and Alabama, as follows: Florida AlabamaPen sales $18,000 $12,000Pencil sales 9,000 21,000Total sales $27,000 $33,000The common fixed expenses are traceable to each territory as follows:Florida fixed expenses $2,000Alabama fixed expenses 3,000Home office administration fixed expenses 1,000Total common fixed expenses $6,000The direct fixed expenses of pens, $9,000, and of pencils, $7,000, cannot be identified with either territory. The company's accountants were unable to allocate any of the common fixed expenses to the various segments.Required:Prepare income statements segmented by territory for September.

Answer 1

Script, Inc.

Territory and Company Income Statements

For the Month of September

Florida$ Alabama$ Company Total$

Sales

Pens 18000 12000 30000

Pencils 9000 21000 30000

Total sales [A] 27000 33000 60000

Variable cost

Pens 7200 4,800 12000

[18000*.4] [12000*.4]

[12000 Variable cost / 30000 = 0.40 per pen ]

Pencils 3600 8400 12000

[9000*.4] [21000*.4]

[12000 Variable cost /30000 = 0.4 per pencil]

Total var. cost [B] 10800 13200 24000

Contribution A-B 16200 19800 36000

D. fixed expenses 2000 3000 5000

Territory margin 14200 16800 31000

Common fixed expenses

Pen 9000

Pencil 7000

Home office 1000

Total 17,000 (17000)

Net income 14000