Stryker Corporation has two major business segments-East and West. In April, the East business segment had sales revenues of $500,000, variable expenses of $280,000, and traceable fixed expenses of $80,000. During the same month, the West business segment had sales revenues of $970,000, variable expenses of $514,000, and traceable fixed expenses of $184,000. The common fixed expenses totaled $280,000 and were allocated as follows: $112,000 to the East business segment and $168,000 to the West business segment.
-A properly constructed segmented income statement in a contribution format would show that the segment margin of the East business segment is:
A)$108,000
B)$28,000
C)$140,000
D)$280,000

Question

Quizplus · Accepted Answer

A segmented income statement in a contribution format separates the costs into two categories: variable costs and fixed costs. Then, it subtracts the variable costs from the segment's revenue to calculate the contribution margin. After that, it deducts fixed costs from the contribution margin to arrive at the segment margin.

Using this format, we can calculate the segment margin for the East business segment as:

Revenue - Variable costs - Fixed costs = Segment margin

$1,000,000 - $400,000 - $460,000 = $140,000

Therefore, the correct choice is C, and the segment margin of the East business segment is $140,000.

Stryker Corporation Has Two Major Business Segments-East and West