Data for January for Bondi Corporation and its two major business segments, North and South, appear below: In addition, common fixed expenses totaled $179,000 and were allocated as follows: $93,000 to the North business segment and $86,000 to the South 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) $(7,000)
B) $172,000
C) $351,000
D) $496,000

Question

Data for January for Bondi Corporation and its two major business segments, North and South, appear below:  In addition, common fixed expenses totaled $179,000 and were allocated as follows: $93,000 to the North business segment and $86,000 to the South 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) $(7,000) 
B) $172,000 
C) $351,000 
D) $496,000

Quizplus · Accepted Answer

To prepare a segmented income statement in a contribution format, we need to separate the costs into variable and fixed costs, and allocate the fixed costs to each segment based on some reasonable criteria, such as revenue or contribution margin.

First, let's calculate the contribution margin for each segment:

North: 
Sales $1,500,000 
Variable expenses: 
Cost of goods sold ($750,000) 
Commissions ($90,000) 
Other variable expenses ($135,000) 
Contribution margin $525,000

South: 
Sales $2,500,000 
Variable expenses: 
Cost of goods sold ($1,625,000) 
Commissions ($200,000) 
Other variable expenses ($300,000) 
Contribution margin $375,000

Next, we allocate the common fixed expenses:

North: 
Contribution margin $525,000 
Common fixed expenses ($93,000) 
Segment margin $432,000

South: 
Contribution margin $375,000 
Common fixed expenses ($86,000) 
Segment margin $289,000

Finally, we calculate the net operating income of the company as a whole:

Segment margin (North) $432,000 
Segment margin (South) $289,000 
Common fixed expenses ($179,000) 
Net operating income $542,000

Therefore, the answer is B, $172,000.

Data for January for Bondi Corporation and Its Two Major