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Ryan37sport Ryan37sport
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4 months ago
Bill Jones Flooring's accountant, has prepared the following income statement for the month of May.

​​ResidentialCommercialTotal
Sales Revenue$2,760,000$3,125,000 $5,885,000
Variable expenses    1,305,00  2,520,000  3,825,000
Contribution margin1,455,000605,000 2,060,000
Fixed expenses     645,000    615,0000  1,260,000
Operating income$   810,000$   (10,000)$   800,000

In preparing the income statement, Bill was unsure what to do with $240,000 in corporate fixed expenses that cannot be traced to a division. Since these costs were incurred to run the business, and he believed that each division benefited equally, he just allocated half to each division.

Required:

a.How do you think Bill should have handled the $240,000 in corporate fixed
expenses?
b.Prepare a segment margin income statement that highlights each division's
contribution
to corporate profits. Omit the heading.
Textbook 
Managerial Accounting

Managerial Accounting


Edition: 4th
Author:
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richardbuggrichardbugg
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4 months ago
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More solutions for this book are available here
a. Consistent with the principles of responsibility accounting, it is important that the profit calculation include only those items that are under the manager's control. Therefore, Bill should remove the common fixed expenses from total fixed expenses, so that only traceable fixed expenses are shown in the segment margin.
b.
​​ResidentialCommercialTotal
Sales Revenue$2,760,000$3,125,000 $5,885,000
Variable expenses    1,305,00  2,520,000  3,825,000
Contribution margin1,455,000605,000 2,060,000
Traceable fixed expenses     525,000    495,0000  1,020,000
Segment margin$   930,000$     110,000 1,040,000
Common fixed expenses​​     240,000
Operating income​​$   800,000
1

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