Music Teachers, Inc., is an educational association for music teachers that has
ID: 2422502 • Letter: M
Question
Music Teachers, Inc., is an educational association for music teachers that has 20,000 members. The association operates from a central headquarters but has local membership chapters throughout the United States. Monthly meetings are held by the local chapters to discuss recent developments on topics of interest to music teachers. The association's journal, Teachers' Forum, is issued monthly with features about recent developments in the field. The association publishes books and reports and also sponsors professional courses that qualify for continuing professional education credit. The association's statement of revenues and expenses for the current year is presented below.
Revenues $3,275,000
Expenses:
Salaries 920,000
Personnel costs 230,000
Occupancy costs 280,000
Reimbursement of member costs to local chapters. 600,000
Other membership services 500,000
Printing and paper 320,000
Postage and shipping 176,000
Instructors' fees 80,000
General and administrative 38,000
Total expenses 3,144,000
Excess of revenues over expenses . $ 131,000
The board of directors of Music Teachers, Inc., has requested that a segmented income statement be prepared showing the contribution of each profit center to the association. The association has four profit centers: Membership Division. Magazine Subscriptions Division. Books and Reports Division, and Continuing Education Division. Mike Doyle has been assigned responsibility for preparing the segmented income statement, and he has gathered the following data prior to its preparation.
a. Membership dues are $100 per year, of which $20 is considered to cover a one-year subscription to the association's journal. Other benefits include membership in the association and chapter affiliation. The portion of the dues covering the magazine subscription ($20) should be assigned to the Magazine Subscription Division.
b. One-year subscriptions to Teachers' Forum were sold to nonmembers and libraries at $30 per subscription. A total of 2,500 of these subscriptions were sold last year. In addition to subscriptions, the magazine generated $100,000 in advertising revenues. The costs per magazine subscription were $7 for printing and paper and $4 for postage and shipping.
c. A total of 28,000 technical reports and professional texts were sold by the Books and Reports Division at an average unit selling price of $25. Average costs per publication were $4 for printing and paper and $2 for postage and shipping.
d. The association offers a variety of continuing education courses to both members and nonmembers. The one-day courses had a tuition cost of $75 each and were attended by 2,400 students. A total of 1.760 students took two-day courses at a tuition cost of $125 for each student. Outside instructors were paid to teach some courses.
e. Salary costs and space occupied by division follow:
Salaries / Space Occupied(square feet)
Membership $210,000 / 2,000
Magazine Subscriptions 150,000 / 2,000
Books and Reports 300,000 / 3,000
Continuing Education 180,000 / 2,000
Corporate staff 80,000 / 1,000
Total $920,000 / 10,000
Personnel costs are 25% of salaries in the separate divisions as well as for the corporate staff. The $280,000 in occupancy costs includes $50.000 in rental cost for a warehouse used by the Books and Reports Division for storage purposes.
f. Printing and paper costs other than for magazine subscriptions and for books and reports relate to the Continuing Education Division.
g. General and administrative expenses include costs relating to overall administration of the association as a whole. The company's corporate staff does some mailing of materials for general administrative purposes. The expenses that can be traced or assigned to the corporate staff, as well as any other expenses that are not traceable to the profit centers, will be treated as common costs. It is not necessary to distinguish between variable and fixed costs.
Required:
1. Prepare a contribution format segmented income statement for Music Teachers. Inc. This statement should show the segment margin for each division as well as results for the association as a whole
Explanation / Answer
1.
Prepare a contribution format segmented income statement for Music Teachers. Inc. This statement should show the segment margin for each division as well as results for the association as a whole:
Details Membershipdivision Magazine
Subscriptions Division Books and
Reports Division Continuing
Education Division As a whole Revenues: Membership dues $ 2,000,000 $ 2,000,000 Sold to nonmembers and libraries $ 75,000 $ 75,000 Advertising revenue $ 100,000 $ 100,000 Technical reports and professional texts $ 700,000 $ 700,000 Education courses for one day $ 180,000 $ 180,000 Education courses for two days $ 220,000 $ 220,000 Total Revenue $ 2,000,000 $ 175,000 $ 700,000 $ 400,000 $ 3,275,000 Expenses: Salaries to divisions $ 210,000 $ 150,000 $ 300,000 $ 180,000 $ 840,000 Salaries to corporate staff $ 80,000 Personel costs to divisions $ 52,500 $ 37,500 $ 75,000 $ 45,000 $ 210,000 Personel costs to corporate staff $ 20,000 Occupency cost to divisions: Rent $ 50,000 $ 50,000 Other than rent
(Based on square feet occupaid) (2:2:3:2:1) $ 46,000 $ 46,000 $ 69,000 $ 46,000 $ 207,000 Other than rent
(Based on square feet occupaid) (2:2:3:2:1) for
corporate staff $ 23,000 Reimbursement of member
costs to local chapters $ 600,000 Other membership services $ 500,000 Printing and paper $ 320,000 Postage and shipping $ 176,000 Instructors' fees $ 80,000 General and administrative $ 38,000 Magazine subscription $ 400,000 Priniting and paper
($7*2,500) $ 17,500 Postage and shipping
($4*2,500) $ 10,000 Priniting and paper
($4*28,000) $ 112,000 Postage and shipping
($2*28,000) $ 56,000 Total expences $ 308,500 $ 661,000 $ 662,000 $ 271,000 $ 3,144,000 Net income $ 1,691,500 $ (486,000) $ 38,000 $ 129,000 $ 131,000
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