Question

The MEC Company has two divisions: the Computer division and the Printer division. Cost and revenue information for the two divisions for the year is as follows: Computer Printer Division DivisionRevenue...................................................................... $1,100,000 $750,000Fixed costs:Costs unique to each division........................................ 450,000 375,000Costs allocated by corporate headquarters.................... 50,000 70,000Variable cost per unit.................................................... 7 6Unit sales of each division’s product.............................. 75,000 52,000Prepare a segment margin income statement showing each division’s contribution and segment margins and the overall company profit.Segment Income StatementTotal Company Computer Division Printer DivisionRevenue $1,850,000 $1,100,000 $750,000Variable Costs - 837,000 - 525,000 - 312,000Contribution Margin 1,013,000 575,000 438,000Traceable Fixed Costs - 825,000 - 450,000 -375,000Division (Segment) Margin 188,000 125,000 63,000Common Fixed Costs - 120,000Net Income $ 68,000How did they get common fixed costs?

Answer 1

Answer:

Segment Income statement

Explanation:

In segment reporting, common costs were not allocated. Both the segments have a positive margin which is covering all its variable cost and contributing towards the  common fixed cost but excluding common fixed cost  which is non-traceable and are allocated to the segment.

Segment Income Statement

                                             Computer Division  Printer Division Total

Revenue                                     $1,100,000               $750,000     1850,000

Variable cost                              (525,000)                 (312,000)      837,000

Contribution margin                   575000                    438000       1,013,000

Costs unique to each division   (450,000)                 (375,000)     825,000

Segment Margin                          125,000                   63,000         188,000

Fixed Cost                                    (60,000)                  (60,000)     120,000

Net Income                                    65,000                     3,000         68,000

If common fixed cost is fixed by 50,000 and 70,000 for computer and printer division respectively then

Segment Margin                            125,000                  63,000       188,000

Common fixed cost                       70,000                   50,000        120,000

Net Income                                     55,000                   13,000          68,000