Michaels Company segments its income statement into its East and West Divisions. The company’s overall sales, contribution margin ratio, and net operating income are $600,000, 50%, and $50,000, respectively. The West Division’s contribution margin and contribution margin ratio are $150,000 and 75%, respectively. The East Division’s segment margin is $70,000. The company has $60,000 of common fixed costs that cannot be traced to either division.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Michaels Company segments its income statement into its East and West Divisions. The company’s overall sales, contribution margin ratio, and net operating income are $600,000, 50%, and
$50,000, respectively. The West Division’s contribution margin and contribution margin ratio are
$150,000 and 75%, respectively. The East Division’s segment margin is $70,000. The company
has $60,000 of common fixed costs that cannot be traced to either division.
Required:
Prepare an income statement for Michaels Company that uses the contribution format and is segmented by divisions. In addition, for the company as a whole and for each segment, show each
item on the segmented income statements as a percent of sales.
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