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    Segmented income statement

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    Total Company Percentage Houston Dallas

    Sales $750,000 100% $150,000 100% $600,000 100%
    Variable expenses 405,000 54 45,000 30% 360,000 60%
    Contribution margin 345,000 46 105,000 70 240,000 40
    Traceable fixed expenses 168,000 22.4 78,000 52 90,000 15
    Office segment margin 177,000 24 27,000 18% $150,000 25%
    Common fixed 120,000 16
    expenses not traceable to offices

    Net operating income $57,000 7.60%

    1. By how much would the company's net opertaing income increase if Dallas increased its sales by $75,000
    per year? Assume no change in cost behavior patterns.

    2. Refer to the original data. Assume that sales in Houston increase by $50,000 next year and that sales in
    Dallas remain unchanged. Assume no change in fixed cost.
    a. Prepare a new segmented income statement for the company using the above format. Show both amounts
    and percentages.

    b. Observe from the income statement you have prepared that CM ration for Houston has remained unchanged
    at 70%(the same as in the above data) but that the segment margin ration has changed. How do you
    explain the change in the segment margin ratio?

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    The solution explains some calculations relating to segmented income statement