chapter 6 HW c) a leztornheducation.com/hm.tpx?-:00269857461 73620706 1511201186
ID: 2577849 • Letter: C
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chapter 6 HW c) a leztornheducation.com/hm.tpx?-:00269857461 73620706 1511201186610 Diversilied 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 Travel Handy Sales 375,000 $145,000 $ 178,000 $52,000 Expenses: Printing costs Advertising General sales Salaries Equipment depreciation Sales commissions General administration Warehouse rent Depreciation-office facilities 122,000 47,00073,0002,000 52,000 31,000 19,5001,500 22,5008,70010,6803,120 37,000 19,500 13,1004,400 11,700 3,9003,9003,900 37,500 14,500 17,800 5,200 45,600 15,20015,20015,200 5,000 5,8007,120 2,080 9,000 3,000 3,000 3,000 Total expenses 352,300 148,600 163,30040,400 Net operating income (loss) $ 22,700 S (3,600) 14,700 $ 11,600 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, 50% of the time to produce travel guides, and 10% 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 60,000 square feet of space, of which 11,200 square feet is used by the cookbook line, 28,000 square feet by the travel guide line, and 20,800 square feet by the handy speler line d. The general sales cost above includes the salary of the sales manager and other sales costs not traceable to any specitic 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 t. All other costs are traceable to the three product lines in the amounts shown on the statement above company as a whole. These costs have been allocated equaly to the three product lines The management of Diversified Products, Inc. is amious to improve the publishing company's 5%Explanation / Answer
Answer: Requirement 1 New contribution format segmented income statement for the month Total company Cookbook Travel Guide Handy Speller Sales-a $ 375,000 $ 145,000 $ 178,000 $ 52,000 Less: Variable expenses: Printing cost $ 122,000 $ 47,000 $ 73,000 $ 2,000 Sales commission $ 37,500 $ 14,500 $ 17,800 $ 5,200 Total variable expenses-b $ 159,500 $ 61,500 $ 90,800 $ 7,200 Contribution margin-c=a-b $ 215,500 $ 83,500 $ 87,200 $ 44,800 Traceable fixed expenses Advertising $ 52,000 $ 31,000 $ 19,500 $ 1,500 Salaries $ 37,000 $ 19,500 $ 13,100 $ 4,400 Equipment depreciation $ 11,700 $ 4,680 $ 5,850 $ 1,170 (11,700*40%) (11,700*50%) (11,700*10%) Warehouse rent $ 15,000 $ 2,800 $ 7,000 $ 5,200 (15000*11200/60000) (15000*28000/60000) (15000*20800/60000) Total traceable fixed expenses-d $ 115,700 $ 57,980 $ 45,450 $ 12,270 Product line segment margin-e=c-d $ 99,800 $ 25,520 $ 41,750 $ 32,530 Common fixed expenses General sales $ 22,500 General administration $ 45,600 Depreciation-office facilities $ 9,000 Total common fixed expenses-f $ 77,100 Net operating income (loss) e-f $ 22,700 2a. No, cookbook should not be eliminated 2b-1 Comtribution margin ratio Total company Cookbook Travel Guide Handy Speller Comtribution margin ratio 57.47% 57.59% 48.99% 86.15% (215,500/375,000) (83,500/145,000) (87,200/178,000) (44,800/52,000) 2b-2 No, all available resources should not be shifted to trade guide as both other product provide more contribution margin than trade guide.
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