Accounting 2102

Segmented Income Statement

Practice Problems

1.

Segment margin is equal to segment sales revenue minus:

A.
B.
C.
D.

Variable cost of goods sold, variable selling and administrative expenses and
traceable fixed costs
Variable cost of goods sold, variable selling expense and common fixed costs
Variable cost of goods sold, total selling expense and traceable fixed costs
Variable cost of goods sold, variable selling expense, common administrative
expense and traceable fixed costs

2.

BDC Corp. has two departments, the ALC Department and the SCR Department. Net
operating income of the corporation was $200,000 during this past reporting period. The
ALC segment margin was $180,000 and the SCR segment margin was $60,000. What is
the common fixed cost for the corporation?

3.

ABC, Inc. has two divisions: AAA and BBB. For the current year, the AAA division has
sales of $3,000, variable expenses of $1,000, and traceable fixed expenses of $500. The
BBB division has sales of $12,000, variable expenses of $5,000, and traceable fixed
expenses of $3,200. Common fixed costs are $750. What is the companys net operating
income?

4.

Jensen Co. makes three products: Tulips, Asters, and Roses. Last years net operating
income/(loss) was $(145,000). The following segment information was taken from last
years segmented income statement:
Tulips
Asters
$25,000 $(50,000)
$(5,000) $(80,000)
$(15,000 $(120,000
)
)

Contribution Margin
Segment Margin
Segment Margin less common
fixed costs

Roses
$70,000
$50,000
$(10,000
)

Jensen expects that this pattern of segment information will be similar next year. If
Jensen wants to maximize profit in the coming year, which product or products should he
discontinue?
Tulips and asters because they have negative segment margin

Accounting 2102
Segmented Income Statement
Practice Problems
5.

Nantua Sunglasses Corporation has two divisions: Southern and Northern. The
following information was taken from last years income statement segmented by
division:

Sales
Contribution
Margin
Segment
Margin

Total Southern Northern

$4,000,00 $2,500,00 $1,500,00
0
0
0
$1,650,00 $1,050,00 $600,000
0
0
$850,000 $700,000 $150,000

If the Northern Divisions sales last year were $300,000 higher, how would this have
changed Nantuas net operating income (assuming no change in cost structure)?

6. If a cost is a common cost of the segments on a segmented income statement, the cost
should:
A.
B.
C.
D.

be allocated to the segments on the basis of segment sales.

not be allocated to the segments.
excluded from the income statement.
treated as a product cost rather than as a period cost.

7. If a segments common costs decrease, then:

A.
B.
C.
D.

Net operating income remains the same.

Segment margins remain the same.
Sales have increased.
Sales have decreased.

8. Koen Corporation has two divisions: Division A and Division B. Last month, the company
reported a contribution margin of $50,000 for Division A. Division B had a contribution
margin ratio of 30% and its sales were $250,000. Net operating income for the company was
$30,000 and traceable fixed expenses were $50,000. Koen Corporation's common fixed
expenses were:
A.
B.
C.
D.

$95,000
$75,000
$45,000
$50,000
2

Accounting 2102
Segmented Income Statement
Practice Problems

Accounting 2102
Segmented Income Statement
Practice Problems

SOLUTIONS:
1.

2.
ALC

SCR

Total Segment - Income = Common

$180,000 + $60,000 = $240,000 - $200,000 = $40,000

3.

Sales
Less: Variable Costs
CM
Less: Traceable Fixed Costs
Segment Margin
Less Common Costs
Net Operating Income

4.

Total
Company
$15,000
$(6,000)
$9,000
$(3,700)
$5,300
$(750)
$4,550

AAA
$3,000
$(1,000)
$2,000
($500)
$1,500

BBB
$12,000
$(5,000)
$7,000
$(3,200)
$3,800

Tulips and Asters should be eliminated because their segment margins are negative.

5.
Before Increase in
Sales
Northern

% of Sales

After Increase in Sales

Northern

% of Sales

Sales

$1,500,00
0

100%

$1,800,000

100%

Variable costs

$(900,000
)

60%

$(1,080,000
)

60%

$600,000

40%

$720,000

40%

Contribution Margin

Increase in income = $720,000 - $600,000 = $120,000

4

Accounting 2102
Segmented Income Statement
Practice Problems
Note: If there were any changes in fixed expenses (either traceable or common), you
would need to deduct those costs as well to find the new net operating income.
6.
7.

B
B

8.

C
Total Company

Sales
Variable expenses
CM
Traceable fixed expense
Segment margin
Common fixed expenses
Net operating income

$125,000 (2)
$50,000
$75,000 (3)
$45,000 (answer)
$30,000

Division A
$50,000

Division B
$250,000
$75,000 (1)

B%
30%