ACC- The management of Reston Company

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Description

The management of Reston Company is disappointed with the company’s performance and is wondering what can be done to improve profits. Below is Reston Company’s contribution format income statement for the month of December.

Sales $900,000 100.0%
Variable expenses 408,000 45.3
Contribution margin 492,000 54.7
Fixed expenses 465,000 51.7
Net operating income $ 27,000 3.0

By examining sales and cost records, you have determined the following.

The company is divided into two sales territories – Central and Eastern. The Central Territory recorded $400,000 in sales and $208,000 in variable expenses during December. The remaining sales and variable expenses were recorded in the Eastern Territory. Fixed expenses of $160,000 and $130,000 are traceable to the Central and Eastern Territories respectively. The rest of the fixed expenses are common to the two territories.

Required:

Prepare a contribution format income statement showing the company broken down by sales territory. In addition show each item on the segmented income statement as a percentage of sales.

Look at the statement you have prepared showing the total company segmented by sales territory. What points revealed by this statement should be brought to management’s attention?

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