Tubaugh Corporation has two major business segments--East and West. In December, the East business segment had sales revenues of $690,000, variable expenses of $352,000, and traceable fixed expenses of $104,000. During the same month, the West business segment had sales revenues of $140,000, variable expenses of $56,000, and traceable fixed expenses of $24,000. The common fixed expenses totaled $162,000 and were allocated as follows: $89,000 to the East business segment and $73,000 to the West business segment.A properly constructed segmented income statement in a contribution format would show that the net operating income of the company as a whole is:
A) $294,000
B) $422,000
C) $132,000
D) $(30,000)

Question

Quizplus · Accepted Answer

To calculate the net operating income of the company as a whole, we first calculate the contribution margin for each segment and then subtract the common fixed expenses (not allocated to segments as they are common to the whole company).East:- Sales revenues: $690,000- Variable expenses: $352,000- Contribution Margin: $690,000 - $352,000 = $338,000- Traceable fixed expenses: $104,000- Segment Margin: $338,000 - $104,000 = $234,000West:- Sales revenues: $140,000- Variable expenses: $56,000- Contribution Margin: $140,000 - $56,000 = $84,000- Traceable fixed expenses: $24,000- Segment Margin: $84,000 - $24,000 = $60,000Total Segment Margin: $234,000 (East) + $60,000 (West) = $294,000Common Fixed Expenses: $162,000Net Operating Income: $294,000 - $162,000 = $132,000

Tubaugh Corporation Has Two Major Business Segments--East and West