Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 19

Compute Divisional Income

Eastern Merchants shows the following information for its two divisions for year 1:

	Eastern	Western
Revenue	$1,200,000	$3,800,000
Cost of sales	769,500	1,900,000
Allocated corporate overhead	72,000	228,000
Other general and administration	158,500	1,100,000

Required

Compute divisional operating income for the two divisions. Ignore taxes. How well have these divisions performed?

Step 1 of 3

Contribution margin income statement:

The difference between sales and cost of goods sold is contribution. In a contribution margin income statement, the contribution margin is shown separately before deducting the other expenses and fixed overheads of the division and company.