Diversified Products, Inc., has recently acquired a small publishing company tha
ID: 2584587 • 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 $16. The publishing company's most recent monthly income statement is given below: Total Company $ 330,000 $102,000 $162,000 $ 66,000 Product Line Travel Cookbook Guide Speller Sales Expenses Printing costs Advertising General sales Salaries Equipment depreciation Sales commissions 108,000 33,000 63,600 11,400 42,000 14,100 22,500 9,720 9,600 2,500 6,120 39,000 24,000 2,500 5,400 3,960 5,400 2,500 19,800 7,500 33,000 10,200 16,200 6,600 eneral administration Warehouse rent Depreciation-office facilities 43,800 14,600 13,200 4,080 1,600 14,600 14,600 2,640 1,600 6,480 1,600 4,800 Total expenses 311,100 110,200 146,800 54,100 Net operating income (loss) $ 18,900 $ (8,200) $ 15,200 $ 11,900 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, 40% of the time to produce travel guides, and 40% 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 52,800 square feet of space, of which 8,400 square feet is used by the cookbook line, 25,200 square feet by the travel guide line, and 19,200 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 sales dollarsExplanation / Answer
Answer:
1
Prepare a new contribution format segmented income statement for the month.
Total
Company
Cook-Book
Travel
Guide
Handy
Speller
Sales
330000
102000
162000
66000
Variable expenses:
Printing cost
108000
33000
63600
11400
Sales commissions
33000
10200
16200
6600
Total variable expenses
141000
43200
79800
18000
Contribution margin
189000
58800
82200
48000
Traceable fixed expenses:
Advertising
42000
14100
22500
5400
Salaries
39000
24000
9600
5400
Equipment depreciation
7500
1500
3000
3000
Warehouse rent
13200
2100
6300
4800
Total traceable fixed expenses
101700
41700
41400
18600
Product line segment margin
87300
17100
40800
29400
Common fixed expenses
General sales
19800
Depreciation—office facilities
4800
General administration
43800
Total common fixed expense
68400
Net operating income
18900
___________________________________________-
2
Based on the statement you have prepared, do you agree with the decision to eliminate the cookbook?
ANswer:
NO
_______________________________________
Compute the contribution margin ratio for each product.
Cook-Book
Travel
Guide
Handy
Speller
Sales
102000
162000
66000
Less: variable cost
43200
79800
18000
Contribution
58800
82200
48000
Contribution magin
=contribution/sales
58%
51%
73%
Total
Company
Cook-Book
Travel
Guide
Handy
Speller
Sales
330000
102000
162000
66000
Variable expenses:
Printing cost
108000
33000
63600
11400
Sales commissions
33000
10200
16200
6600
Total variable expenses
141000
43200
79800
18000
Contribution margin
189000
58800
82200
48000
Traceable fixed expenses:
Advertising
42000
14100
22500
5400
Salaries
39000
24000
9600
5400
Equipment depreciation
7500
1500
3000
3000
Warehouse rent
13200
2100
6300
4800
Total traceable fixed expenses
101700
41700
41400
18600
Product line segment margin
87300
17100
40800
29400
Common fixed expenses
General sales
19800
Depreciation—office facilities
4800
General administration
43800
Total common fixed expense
68400
Net operating income
18900