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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Segmented Income Statements, Product-Line Analysis

Alard Company produces blenders and coffee makers. During the past year, the company produced and sold 65,000 blenders and 75,000 coffee makers. Fixed costs for Alard totaled $340,000, of which $184,000 can be avoided if the blenders are not produced and $142,500 can be avoided if the coffee makers are not produced. Revenue and variable cost information follows:

Chapter 8, Problem 55P, Segmented Income Statements, Product-Line Analysis Alard Company produces blenders and coffee

Required:

  1. 1. Prepare segmented income statements. Separate direct and common fixed costs.
  2. 2. What would the effect be on Alard’s profit if the coffee maker line is dropped? The blender line?
  3. 3. What would the effect be on firm profits if an additional 10,000 blenders could be produced (using existing capacity) and sold for $21.50 on a special-order basis? Existing sales would be unaffected by the special order.

1.

To determine

Make a segmented income statement. Also, separate the direct and common fixed costs.

Explanation

Segmented Income Statement:

Variable costing is used in the preparation of a segmented income statement. In this income statement, the variable expenses are recorded separately from the fixed expenses which are further divided into direct fixed expenses and common expenses.

The following table represents the segmented income statement of Company A:

Company A
Segmented Income Statement
For the Previous Year
 

Blenders

($)

Coffee

Makers ($)

Total

($)

Sales11,560,0002,175,0003,735,000
Less variable cost of goods sold:21,170,0002,025,0003,195,000
Contribution margin390,000150,000540,000
Less direct fixed expenses:184,000142,500326,500
Segment margin206,0007,500213,500
Less common fixed expenses3:  13,500
Operating income  200,000

Table (1)

Therefore, the amount of operating income is $200,000.

Working Notes:

1. Calculation of sales for blenders:

Sales=Units sold×Sales price=65,000units×$24=$1,560,000

Hence, the amount of sales for blenders is $1,560,000.

Calculation of sales for coffee makers:

Sales=Units sold×Sales price=75,000units×$29=$2,175,000

Hence, the amount of sales for coffee makers is $2,175,000

2.

To determine

Describe the impact on profit of Company A if the line of coffee maker is dropped and in if blender line is dropped.

3.

To determine

Describe the effect on the firm’s profit if the additional 10,000 blenders are produced and sold at $21.50.

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