FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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![Required information
[The following information applies to the questions displayed below.]
Cardio World Incorporated (CWI) is a sporting goods retailer that specializes in bicycles, running shoes, and related
clothing. The firm has become successful by careful attention to trends in cycling, running, and changes in the technology
and fashion of sport clothing. In recent years, however, the profit margins have begun to fall, and CWI has decided to
employ a contribution income statement to further analyze the company's profitability. The company has two stores, one
in Hartford, Connecticut, and the other in Boston, Massachusetts. The total sales for the two stores for the most recent
year are $6,985,000 and $5,835,000 for the Hartford and Boston stores, respectively. Both stores are considered profit
centers, and within each store are two profit centers: one for clothing and the other for cycle and running shoes
(called "cycle & run" below). The breakdown of sales within the two stores is approximately 50% clothing and 50% cycle &
run for Boston but is estimated to be 60% / 40% for Hartford due to the greater interest in cycling in the Boston area. CWI is
interested in finding the profit contribution of clothing and cycle & run at the Hartford store but not at the Boston store.
Cost of purchases for resale averages 60% of retail value at Boston; at Hartford, the cost is 70% for clothing and 50% for
cycle & run. Variable operating costs at each store are similar: 30% of retail sales at Boston, and at Hartford, variable
operating costs are 25% of retail sales for the clothing unit and 35% for the cycle & run unit. CWI estimates it has a total of
$1,175,000 fixed cost, of which $405,000 cannot be traced to either store; of the remaining $770,000, $435,000 is
traceable to the stores and controllable by store managers, and $335,000 can be traced to the stores but cannot be
controlled in the short term by the store managers. These fixed costs are estimated to be traceable to the stores as
follows:
Fixed Controllable Costs
Boston
Hartford total
Clothing
Cycle & run
Could not be traced to clothing or cycling at Hartford
Could not be traced to Boston or Hartford
Fixed Noncontrollable Costs
Boston
Hartford total
Clothing
Cycle & run
Could not be traced to clothing or cycling at Hartford
Could not be traced to Boston or Hartford
Percent of
Total Cost
45%
45
50
30
20
10
Percent of
Total Cost
40%
50 55 35 18 18
10
10
Required:
1. Prepare a contribution income statement for CWI showing the contribution margin, controllable margin, and contribution by profit
center for both the Boston and Hartford stores, and also for the clothing and cycle & run units of the Hartford store.](https://content.bartleby.com/qna-images/question/383b142b-eb99-4f65-85a9-183c5e745d0b/02106c97-0c9e-44b1-9caa-e15af328731e/i1zc1v9_processed.jpeg)
Transcribed Image Text:Required information
[The following information applies to the questions displayed below.]
Cardio World Incorporated (CWI) is a sporting goods retailer that specializes in bicycles, running shoes, and related
clothing. The firm has become successful by careful attention to trends in cycling, running, and changes in the technology
and fashion of sport clothing. In recent years, however, the profit margins have begun to fall, and CWI has decided to
employ a contribution income statement to further analyze the company's profitability. The company has two stores, one
in Hartford, Connecticut, and the other in Boston, Massachusetts. The total sales for the two stores for the most recent
year are $6,985,000 and $5,835,000 for the Hartford and Boston stores, respectively. Both stores are considered profit
centers, and within each store are two profit centers: one for clothing and the other for cycle and running shoes
(called "cycle & run" below). The breakdown of sales within the two stores is approximately 50% clothing and 50% cycle &
run for Boston but is estimated to be 60% / 40% for Hartford due to the greater interest in cycling in the Boston area. CWI is
interested in finding the profit contribution of clothing and cycle & run at the Hartford store but not at the Boston store.
Cost of purchases for resale averages 60% of retail value at Boston; at Hartford, the cost is 70% for clothing and 50% for
cycle & run. Variable operating costs at each store are similar: 30% of retail sales at Boston, and at Hartford, variable
operating costs are 25% of retail sales for the clothing unit and 35% for the cycle & run unit. CWI estimates it has a total of
$1,175,000 fixed cost, of which $405,000 cannot be traced to either store; of the remaining $770,000, $435,000 is
traceable to the stores and controllable by store managers, and $335,000 can be traced to the stores but cannot be
controlled in the short term by the store managers. These fixed costs are estimated to be traceable to the stores as
follows:
Fixed Controllable Costs
Boston
Hartford total
Clothing
Cycle & run
Could not be traced to clothing or cycling at Hartford
Could not be traced to Boston or Hartford
Fixed Noncontrollable Costs
Boston
Hartford total
Clothing
Cycle & run
Could not be traced to clothing or cycling at Hartford
Could not be traced to Boston or Hartford
Percent of
Total Cost
45%
45
50
30
20
10
Percent of
Total Cost
40%
50 55 35 18 18
10
10
Required:
1. Prepare a contribution income statement for CWI showing the contribution margin, controllable margin, and contribution by profit
center for both the Boston and Hartford stores, and also for the clothing and cycle & run units of the Hartford store.
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