University Publishers, Inc., has prepared income statements segmented by divisio
ID: 2452829 • Letter: U
Question
University Publishers, Inc., has prepared income statements segmented by divisions, but management is still uncertain about actual performance. Financial information for May is given as follows: TEXTBOOK DIVISION PROFESSIONAL DIVISION COMPANY TOTAL SALES 200,000 410,000 610,000 LESS VARIABLE EXPENSES 36,000 225,500 261,500 CONTRIBUTION MARGIN 164,000 184,500 348,500 LESS DIRECT FIXED EXPENSES 15,000 205,500 220,000 NET INCOME 149,000 (20,500) 128,500 Management is concerned about the Professional Division and requests additional analysis. Additional information regarding May operations of the Professional Division is as follows: ACCOUNTING EXECUTIVE MANAGEMENT SALES 140,000 140,000 130,000 VARIABLE MANUFACTURING EXPENSES AS % OF SALES 60% 40% 50% OTHER VARIABLE EXPENSES AS % OF SALES 5% 5% 5% DIRECT FIXED EXPENSES 50,000 75,000 50,000 ALLOCATED COMMON FIXED EXPENSES 5,000 2,000 7,000 The professional accounting books are sold to auditors and controllers. The current information on these markets is as follows: SALES MARKET AUDITORS CONTROLLERS SALES 30,000 110,000 VARIABLE MANUFACTURING EXPENSES AS % OF SALES 60% 60% OTHER VARIABLE EXPENSES AS % OF SALES 16% 2% DIRECT FIXED EXPENSES 10,000 25,000 ALLOCATED COMMON FIXED EXPENSES 4,000 8,000 a. Prepare an income statement segmented by product for the Professional Division. Include a column for the division as a whole. b. Prepare an income statement segmented by market for the accounting books of the Professional Division. c. Evaluate which accounting books the Professional Division should keep or discontinue in the short run. d. What is the correct long-run decision? Explain fully, including any possible risks associated with your recommendation.
Explanation / Answer
Solution:
Income Statement
Particulars Amount Amount Amount Text Book Solution Divisional: Sales 2,00,000 4,10,000 6,10,000 Less: Variable Costs 36,000 2,25,500 2,61,500 Contribution Margin 1,64,000 1,84,500 3,48,500 Fixed Cost Expencess 15,000 2,05,500 2,20,000 Net Income 1,49,000 (20,500) 1,28,500 Add: Additional Information Excutive Mgt Sales 1,40,000 1,40,000 1,30,000 Less: Variabl Mfg Expencess on % of Sales 84,000 56,000 65,000 Other Variable Cost Expencesss 7,000 7,000 6,500 Contribution Margin of Only Additional Info 49,000 77,000 58,500 Add: Net Income + Additional Infor Margin 1,49,000 + 49,000 = 1,98,000 77,000 - 20,500 = 56,500 1,28,500 + 58,500 =1,87,000 Less: Fixed Expencess Common Fixed Expencess 5,000 2,000 7,000 Direct Fixed Expencess 50,000 75,000 50,000 Net Income 1,43,000 (20,500) 1,30,000 Add: Sales Market Auditors Sales 30,000 1,10,000 0 Less: Variable Cost Expencess Variable Cost Expencess 18,000 66,000 0 Other Variable Cost Expencess 4,800 2,200 0 Contribution Margin 7,200 41,800 0 Less: Fixed Cost Expencess Direct Fixed Cost Expencess 10,000 25,000 0 Common Fixed Cost Expencess 4,000 8,000 0 Net Income (6,800) 8,800 0 Total Net Income 1,43,000 - 6,800 = 1,36,200 20,500 - 8,800 = (11,700) = 1,30,000Related Questions
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