Patterson Company operates three segments. Income statements for the segmentsimply that profitability could be improved if Segment A were eliminated.PATTERSON COMPANYIncome Statements for the Year 2014SegmentSalesАВС$169,000 $243,000 $258,000(80,000)(31,000)(121,000)(17,000)Cost of goods soldSales commissions(88,000)(30,000)Contribution marginGeneral fixed oper. exp. (allocation ofpresident's salary)Advertising expense (specific to individualdivisions)132,00031,000140,000(34,000)(48,000)(32,000)(6,000)(11,000)(9,000) $73,000$108,000Net incomeRequired:a. Prepare a schedule of relevant sales and costs for Segment A.Relevant Rev. and Cost items for Segment AEffect on incomeb. Prepare comparative income statements for the company as a whole under twoalternatives: (1) the retention of Segment A and (2) the elimination of Segment A.PATTERSON COMPANYComparative Income Statements for the Year 2014Eliminate Seg. AKeep Seg.ADecisionSalesCost of goods soldSales commissionsContribution marginGen. fixed operating expensesAdvertising expenseNet Income

Question
Asked Nov 12, 2019
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Patterson Company operates three segments. Income statements for the segments
imply that profitability could be improved if Segment A were eliminated.
PATTERSON COMPANY
Income Statements for the Year 2014
Segment
Sales
А
В
С
$169,000 $243,000 $258,000
(80,000)
(31,000)
(121,000)
(17,000)
Cost of goods sold
Sales commissions
(88,000)
(30,000)
Contribution margin
General fixed oper. exp. (allocation of
president's salary)
Advertising expense (specific to individual
divisions)
132,000
31,000
140,000
(34,000)
(48,000)
(32,000)
(6,000)
(11,000)
(9,000) $73,000
$108,000
Net income
Required:
a. Prepare a schedule of relevant sales and costs for Segment A.
Relevant Rev. and Cost items for Segment A
Effect on income
b. Prepare comparative income statements for the company as a whole under two
alternatives: (1) the retention of Segment A and (2) the elimination of Segment A.
PATTERSON COMPANY
Comparative Income Statements for the Year 2014
Eliminate Seg. A
Keep Seg.A
Decision
Sales
Cost of goods sold
Sales commissions
Contribution margin
Gen. fixed operating expenses
Advertising expense
Net Income
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Patterson Company operates three segments. Income statements for the segments imply that profitability could be improved if Segment A were eliminated. PATTERSON COMPANY Income Statements for the Year 2014 Segment Sales А В С $169,000 $243,000 $258,000 (80,000) (31,000) (121,000) (17,000) Cost of goods sold Sales commissions (88,000) (30,000) Contribution margin General fixed oper. exp. (allocation of president's salary) Advertising expense (specific to individual divisions) 132,000 31,000 140,000 (34,000) (48,000) (32,000) (6,000) (11,000) (9,000) $73,000 $108,000 Net income Required: a. Prepare a schedule of relevant sales and costs for Segment A. Relevant Rev. and Cost items for Segment A Effect on income b. Prepare comparative income statements for the company as a whole under two alternatives: (1) the retention of Segment A and (2) the elimination of Segment A. PATTERSON COMPANY Comparative Income Statements for the Year 2014 Eliminate Seg. A Keep Seg.A Decision Sales Cost of goods sold Sales commissions Contribution margin Gen. fixed operating expenses Advertising expense Net Income

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Expert Answer

Step 1

Relevant costs refer to the all the related cost of a product and relevant sales refers to the sales proceeds related to the product.

Income statement is prepared to calculate the total loss or profit earned by the company from a product, department or company.

Step 2

a)

Schedule of relevant sales & cost of segment A is as follows:

Amount ($
169,000
(121,000)
(17,000)
31,000
6,000
25,000
Particular
Sales
Less: cost of goods sold
Less: sales commission
Contribution margin
Less: advertising expenses
Segment margin (income)
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Amount ($ 169,000 (121,000) (17,000) 31,000 6,000 25,000 Particular Sales Less: cost of goods sold Less: sales commission Contribution margin Less: advertising expenses Segment margin (income)

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Step 3

b)

Income statement of the company for tw...

Particular
Retention of segment Elimination of segment
A (S)
670,000
(289,000)
(78,000)
303.000
(17,000)
286,000
(114,000)
172,000
A (S)
501,000
(168,000)
(61,000)
272,000
(11,000)
261,000
(80,000)
181,000
Sales
Less: cost of goods sold
Less: sales commission
Contribution margin
Less: advertising expenses
Segment margin
Less: general fixed operating expenses
Net income
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Particular Retention of segment Elimination of segment A (S) 670,000 (289,000) (78,000) 303.000 (17,000) 286,000 (114,000) 172,000 A (S) 501,000 (168,000) (61,000) 272,000 (11,000) 261,000 (80,000) 181,000 Sales Less: cost of goods sold Less: sales commission Contribution margin Less: advertising expenses Segment margin Less: general fixed operating expenses Net income

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