The segmented income statement for XYZ Company for the year ended December 31, 2
ID: 2533500 • Letter: T
Question
The segmented income statement for XYZ Company for the year ended December 31, 2016, follows: XYZ COMPANY Segmented Income Statement For the Year Ended December 31, 2016 Total Company Product A Product B Product C Sales $ 624,000 $ 308,000 $ 128,000 $ 188,000 Variable expenses 280,000 153,000 54,000 73,000 Contribution margin $ 344,000 $ 155,000 $ 74,000 $ 115,000 Fixed expenses 283,000 164,000 50,000 69,000 Operating income $ 61,000 $ (9,000 ) $ 24,000 $ 46,000 The company is concerned about the performance of product A, and you have been asked to analyze the situation and recommend to the president whether to continue or discontinue the product. During your investigation, you discover that certain fixed expenses are traceable directly to each product line as indicated here: Total Company Product A Product B Product C Direct fixed expenses $104,000 $75,000 $9,000 $20,000 The remaining fixed expenses are considered to be corporate-wide expenses that have been allocated to each product line based on sales revenue. Required: a. What will be the effect of the decision to discontinue product A on operating income?
rating income will for the XYZ Company if it di Product A b. Assume that product A is discontinued. Prepare a segmented income statement for the remaining products. Allocate corporate-wide fixed expenses as described. (Round intermediate calculations to 2 decimal places.) XYZ COMPANY Segmented Income Statement For the Year Ended December 31, 2016 Total Company Product EB Product C Sales Variable expenses Contribution margin Direct fixed expenses Common fixed expenses Operating income/loss c. Starting with the segmented income statement, use the information you discovered during your investigation to present a more appropriately designed segmented income statement. XYZ COMPANY Segmented Income Statement For the Year Ended December 31, 2016 Total Company Product A Product B Product C Sales Variable expenses Contribution margin Direct fixed expenses Segment margin Common fixed expenses Operating income/lossExplanation / Answer
Req a: Financial advantage/Disadvantage Loss of revenue from Product A: -308000 Less: Savings in cost Savings in variable cost 153000 Savings in Direct fixed cost 75000 Net financial disadvantage -80000 Operating income with decreasse by $ 80,000 if Product A discontinues. Req b: Segmented income Statement Total Product B Product C Company Sales 316000 128000 188000 Less: variable cost 127000 54000 73000 Contribution margin 189000 74000 115000 Direct fixed expense 29000 9000 20000 Common Fixed expenses 179000 72506 106494 Operating income/(loss) -19000 -7506 -11494 Req c Total Product B Product C Company Sales 316000 128000 188000 Less: variable cost 127000 54000 73000 Contribution margin 189000 74000 115000 Direct fixed expense 29000 9000 20000 Segmented Income 160000 65000 95000 Less: Common Fixed cost 179000 Net income -19000