Diversified Products, Inc., has recently acquired a small publishing company tha
ID: 2559402 • Letter: D
Question
Diversified Products, Inc., has recently acquired a small publishing company that offers three books for sale -a cookbook, a travel guide, and a handy speller. Each book sells for $11. The publishing company's most recent monthly income statement is given below Product Line Company Cookbook GuideSpeller $ 305,000 $ 92,000 $ 152,000 $61,000 es Expenses Printing costs Advertising General sales 103,000 28,00063,10011,900 37,00013,60020,000 3,400 9,1203,660 9,1005,900 18,3005,520 34,000 19,000 6,000 2,000 Equipment depreciation Sales commissions General administration Warehouse rent Depreciation-office facilities 30,5009,200 15,2006,100 42,300 14,10014,10014,100 6,0802.440 1,1001,100 12,2003,680 3,3001,100 Total expenses 286,60096,200 139,80050,600 Net operating income (loss) $ 18,400 $ (4,200) $ 12.200 $ 10,400 The following additional information is available about the company a. Only printing costs and sales commissions are variable; all other costs are fixed. The printing costs (which include materials, labor, and variable overhead) are traceable to the three product lines as shown in the statement above. Sales commissions are 10% of sales for any product. b. The same equipment is used to produce all three books, so the equipment depreciation cost has been allocated equally among the three product lines. An analysis of the company's activities indicates that the equipment is used 20% of the time to produce cookbooks, 50% of the time to produce travel guides, and 30% of the time to produce handy spellers. c. The warehouse is used to store finished units of product, so the rental cost has been allocated to the product lines on the basis of sales dollars. The warehouse rental cost is $3 per square foot per year. The warehouse contains 48,800 square feet of space, of which 7,400 square feet is used by the cookbook line, 24,200 square feet by the travel guide line, and 17,200 square feet by the handy speller line d. The general sales cost above includes the salary of the sales manager and other sales costs not traceable to any specific product line. This cost has been allocated to the product lines on the basis of company as a whole. These costs have been allocated equally to the three product lines The management of Diversified Products, Inc., is anxious to improve the publishing company's 4% e. The general administration cost and depreciation of office facilities both relate to administration of the f. All other costs are traceable to the three product lines in the amounts shown on the statement above return on salesExplanation / Answer
1. Diversified Products Inc.
Contribution Format Segmented Income Statement
For the month ended......
2. a. No.
b-1.
b-2 : No.
Total Company Cookbook Travel Guide Handy Speller $ $ $ $ Sales 305,000 92,000 152,000 61,000 Variable Expenses Printing Costs 103,000 28,000 63,100 11,900 Sales Commissions 30,500 9,200 15,200 6,100 Total Variable Expenses 133,500 37,200 78,300 18,000 Contribution Margin 171,500 54,800 73,700 43,000 Traceable Fixed Expenses Advertising 37,000 13,600 20,000 3,400 Salaries 34,000 19,000 9,100 5,900 Equipment Depreciation 6,000 1,200 3,000 1,800 Warehouse Rent 12,200 1,850 6,050 4,300 Total Traceable Fixed Expenses 89,200 35,650 38,150 15,400 Product Line Segment Margin 82,300 19,150 35,550 27,600 Common Fixed Expenses General Sales 18,300 General Administration 42,300 Depreciation : Office Facilities 3,300 Total Common Fixed Expenses 63,900 Net Operating Income ( Loss) 18,400