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9A-2 Dave Skold: contribution margin and segment margin

Dave skold owns and operates a small chain of convenience stores in Waterloo and Cedar Rapids. The company has five stores including downtown store and Big Rock store in the Waterloo division: and a downtown store, a solon store and an airport store in the Cedar Rapids Division. There is also a separate administrative staff that provides market research, personnel and accounting and finance services.
The company had the following results for 20X1 (in thousands):
Sales revenue $8,000
Cost of merchandise sold 3,500
Gross Margin 4,500
Operating Income 2,200
Income before income taxes 2,300
The following Data about 20X1 OPERATIONS WERE ALSO AVAILABLE:
1. All five stores used the same pricing formula: therefore, all had the same gross margin percentage
2. Sales were largest in the down town stores, with 30% of the total sales volume in each. The Solon and airport stores each provided 15% of total sales volume and the Big rock store provided 10%.
3. Variable operating costs at the stores were 10% of revenue for the downtown stores. The other stores had lower variable and higher fixed costs. Their variable operating costs were only 5% of sales revenue
4. The fixed costs over which the store managers had control were $ 125,000 in each of the down town stores, $160,000 at Solon and airport, and $80,000 at Big Rock
5. The remaining $910,000 of operating cost consisted of
a) $210,000 controllable by Cedar Rapids division manager but not by individual stores
b) $100,000 controllable by Waterloo division manager but not by individual stores, and
c) $600,000 controllable by administrative staff
6. Of the $600,000 spent by the administrative staff, $350,000 directly supported the Cedar Rapids division, with 20% of the down town store, 30% for each of the Solon and airport stores, and 20% for the Cedar Rapids in general. Another $ 140,000 supported the Waterloo division, 50% for the downtown store, 25% for the Big Rock store and 25% supporting Waterloo operations in general. The other $110,000 was for general corporate expenses.
Prepare an income statement by segments using the contribution approach to responsibility accounting.
Column headings should be as follows:
Breakdown into two Divisions Breakdown of Waterloo Division Breakdown of cedar rapids Division

Waterloo Cedar Rapids Not Allocated Down Town Big Rock Not Allocated Down Town Solon Airport


Solution Summary

Your tutorial is attached in Excel. Click in cells to see computations. This gives you a contribution margin and segment margin subtotal by store and by division. This is now a template for future problems.