9A-2 Dave Skold: contribution margin and segment margin
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9A-2
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
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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.
Education
- BSc, University of Virginia
- MSc, University of Virginia
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