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Segment Reporting

The document contains 3 problems related to segment reporting and contribution format income statements. 1) The first problem analyzes the family law segment of a law firm and determines that it contributes $20,000 in segment margin and should not be dropped despite its small contribution. 2) The second problem restates the family law segment's income statement in contribution format. 3) The third problem calculates the break-even points in dollars for the overall company and each segment.

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Murshid Iqbal
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251 views4 pages

Segment Reporting

The document contains 3 problems related to segment reporting and contribution format income statements. 1) The first problem analyzes the family law segment of a law firm and determines that it contributes $20,000 in segment margin and should not be dropped despite its small contribution. 2) The second problem restates the family law segment's income statement in contribution format. 3) The third problem calculates the break-even points in dollars for the overall company and each segment.

Uploaded by

Murshid Iqbal
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Review Problem-2 (Page-257)

Frampton, Davis and Smythe

Segmented Income Statement

Particulars Family law Commercial law Total


$ $ $
Revenues from Clients 400000 600000 1000000
Less: variable expenses 100000 120000 220000
Contribution Margin 300000 480000 780000
Less: Traceable Fixed expenses 280000 390000 670000
Segment margin 20000 90000 110000
Less: Common Fixed expenses 60000
Net Operating income $50000

Comment: The Company should not be dropped the family law segment because it contributes
$20000 segment margin to increase the overall NOI of the company although the contribution is
small in amount.

2.

Contribution Format Income Statement

(Family Law Segment)

Particulars Amount
$
Revenues from clients (400000+100000) 500000
Less: Variable Expenses (500000*25%) 125000
Contribution margin 375000
Less: Fixed expense (280000+20000) 300000
Net Operating Income 75000

Comment: Accepted.

3.

Break Even Point sales in Dollar (Overall Company) = (730000/ .78) = $935,897

Break Even Point sales in Dollar (Family law) = (280000/ .75) = $373,333

Break Even Point sales in Dollar (Commercial law) = (390000/ .80) = $487,500
Exercise-6.11 (Page-266)

1.

Wingate Company

Segmented Income Statement

Particulars Divisions
East Central West Total
Sales 250000 400000 350000 1000000
Less: Variable Expenses 130000 120000 140000 390000
Contribution Margin 120000 280000 210000 610000
Less: Traceable Fixed Expenses 160000 200000 175000 535000
Segment margin (40000) 80000 35000 75000

2.

Wingate Company

Segmented Income Statement (West division)

Particulars Amount
Sales (350000+70000) 420000
Less: variable Expenses (420000*40%) 168000
Contribution Margin 252000
Less: Fixed Expenses (175000+15000) 190000
Net Operating Income/ Segment margin 62000

Exercise-6.16 (Page- 268)

1. Break Even Point sales in Dollar (Total)= (Fixed Expenses/ CM ratio) = (189000/ .50)
= $378000
Break Even Point sales in Dollar (Chicago) = (78000/.70) = $111429
Break Even Point sales in Dollar (Minneapolis) = (48000/.40) = $120000

Comment: Due to common fixed expenses.

2.

Segmented Income Statement

Minneapolis Office

Particulars Amount
Sales 375000
Less: variable Expenses (375000*.60) 225000
Contribution margin 150000
Less: Fixed Expenses 48000
Segment Margin 102000

Comment: Company’s net operating income will be increased by $30000. So the net operating
income will be = (36000+30000) = $66000.

Alternative (Incremental Approach),

Inc. sales----------------------------- 75000


CM ratio------------------------------ 40%
Inc. CM--------------------------------30000
(-) Inc. Fixed Exp. ------------------- 0
Inc. NOI------------------------------- 30000

3. A)
Raner, Harris, & Chan

Segmented income Statement

Particulars Chicago Office Minneapolis Office Total


Amount Percentag Amount Percentag Amount Percentag
e e e
Sales 200000 100% 300000 100% 500000 100%
Less: variable expenses 60000 30% 180000 60% 240000 48%
Contribution margin 140000 70% 120000 40% 260000 52%
Less: Traceable Fixed Exp. 78000 39% 48000 16% 126000 25.2%
Segment margin 62000 31% 72000 24% 134000 26.8%
Less: Common Fixed expen 63000 12.6%
Net Operating Income 71000 14.2%

b)

Comment: Here the contribution margin ration of Chicago office remain unchanged as we know that
with the increase in sales revenue the variable expense has also been increased proportionately. But
in case of segment margin ratio, the ratio has been increased due to increase in segment revenue
and constant fixed expenses.

Exercise-6.17

1. Contribution format income statement

Particulars Medical Dental Market


market
Sales 240000 135000
Less: Variable Expenses 153600 70200
Contribution margin 86400 64800
Less: Fixed Expenses 17000 26000
Segment margin 69400 38800
Comment: Dental market
2. No. This $48000 will be divided into two categories namely, $33000 as traceable fixed
expenses and rest of the $15000 as common fixed expenses.

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