Please help!!!!!! Diversified Products, Inc., has recently acquired a small publ
ID: 2560443 • Letter: P
Question
Please help!!!!!!
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 Travel Total Company Cookbook Guide $350,000 $121,000 $166,000 $ 63,000 Sales Expenses Printing costs Advertising General sales Salaries Equipment depreciation Sales commissions 117,000 42,000 64,500 10,500 1,000 3,780 4,500 3,400 6,300 15,500 15,500 2,520 2,500 2,500 17,000 9,960 37,000 19,000 21,000 7,260 32,000 17,000 0,50 10,200 3,400 35,000 2,100 46,500 15,500 14,000 3,400 16,600 eneral administration Warehouse rent Depreciation-office facilities 6,640 4,840 2,500 7,500 Total expenses 320,200 123,600 146,600 50,000 Net operating income (loss) $ 29,800 $ (2,600) $ 19,400 $ 13,000 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 40% of the time to produce cookbooks, 40% of the time to produce travel guides, and 20% 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 56,000 square feet of space, of which 10,200 square feet is used by the cookbook line, 27,000 square feet by the travel guide line, and 18,800 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 sales dollars e. The general administration cost and depreciation of office facilities both relate to administration of the company as a whole. These costs have been allocated equally to the three product lines f. All other costs are traceable to the three product lines in the amounts shown on the statement above The management of Diversified Products, Inc., is anxious to improve the publishing company's 6% return on salesExplanation / Answer
Answer:
1
Total
Cook-Book
Travel
Handy
Company
Guide
Speller
Sales
350000
121000
166000
63000
Variable expenses:
Printing cost
117000
42000
64500
10500
Sales commissions
35000
12100
16600
6300
Total variable expenses
152000
54100
81100
16800
Contribution margin
198000
66900
84900
46200
Traceable fixed expenses:
Advertising
37000
19000
17000
1000
Salaries
32000
17000
10500
4500
Equipment depreciation(40:40:20)
10200
4080
4080
2040
Warehouse rent
(10200:27000:18,800)
14000
2550
6750
4700
Total traceable fixed expenses
93200
42630
38330
12240
Product line segment margin
104800
17100
40800
29400
Common fixed expenses
General sales
21000
Depreciation—office facilities
7500
General administration
46500
Total common fixed expense
75000
Net operating income
29800
2-a
Based on the statement you have prepared, do you agree with the decision to eliminate the cookbook?
ANswer:
NO
2-b
Cook-Book
Travel
Handy
Guide
Speller
CM Ratio
55.3%
51.1%
73.3%
Working notes for the answer:
Cook-Book
Travel
Handy
Guide
Speller
Sales
121000
166000
63000
Less: variable cost
54100
81100
16800
Contribution
66900
84900
46200
Contribution magin
55.3%
51.1%
73.3%
c)
Based on the statement you have prepared, do you agree with the decision to focus all available resources on promoting the travel guide?
NO
Total
Cook-Book
Travel
Handy
Company
Guide
Speller
Sales
350000
121000
166000
63000
Variable expenses:
Printing cost
117000
42000
64500
10500
Sales commissions
35000
12100
16600
6300
Total variable expenses
152000
54100
81100
16800
Contribution margin
198000
66900
84900
46200
Traceable fixed expenses:
Advertising
37000
19000
17000
1000
Salaries
32000
17000
10500
4500
Equipment depreciation(40:40:20)
10200
4080
4080
2040
Warehouse rent
(10200:27000:18,800)
14000
2550
6750
4700
Total traceable fixed expenses
93200
42630
38330
12240
Product line segment margin
104800
17100
40800
29400
Common fixed expenses
General sales
21000
Depreciation—office facilities
7500
General administration
46500
Total common fixed expense
75000
Net operating income
29800