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Adjust alloc tions of equipment depreciation and of warehouse rent as indicated by the additional inte 2. After seeing the income statement in the main body of the problem, management has decidej 1. Prepare a new contri to eliminate the cookbook because it is not returning a profit, and to focus all availahie Based on the statement you have prepared, do you agree with the decision to eliminate b. Based on the statement you have prepared, do you agree with the decision to focus al resources on promoting the travel guide. a. available resources on promoting the travel guide? Assume that an ample market j Quniloble for all three product lines. (Hint: Compute the contribution

Adjust alloc tions of equipment depreciation and of warehouse rent as indicated by the additional inte 2. After seeing the income statement in the main body of the problem, management has decidej 1. Prepare a new contri to eliminate the cookbook because it is not returning a profit, and to focus all availahie Based on the statement you have prepared, do you agree with the decision to eliminate b. Based on the statement you have prepared, do you agree with the decision to focus al resources on promoting the travel guide. a. available resources on promoting the travel guide? Assume that an ample market j Quniloble for all three product lines. (Hint: Compute the contribution

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Diversified Products, Inc., has recently acquired a small publishing company that Diversified eOBLEM 13-28 Basic Segment Reporting; Activity-Based Cost Assignment [LO1] Ddacts intends to operate as one of its investment centers. The newly acquired company us three books that it offers for sale-a cookbook, a travel guide, and a handy speller. Cech book sells for $10. The publishing company's most recent monthly income statement is given below: Product Line Total Travel Guide Handy Speller Company Cookbook Sales $300,000 $90,000 $150,000 $60,000 Expenses: Printing costs Advertising . General sales. Salaries Equipment depreciation Sales commissions General administration. 102,000 36,000 27,000 63,000 19,500 9,000 9,000 12,000 13,500 5,400 18,000 3,000 9,000 14,000 3,000 18,000 3,600 6,000 3,000 6,000 33,000 9,000 3,000 30,000 15,000 14,000 6,000 1,000 42,000 14,000 Warehouse rent 12,000 3,600 2,400 1,000 Depreciation-office facilities 3,000 1,000 Total expenses. 285,000 94,500 139,500 51,000 Net operating income (loss). $ 15,000 $ (4,500) $ 10,500 $ 9,000 The following additional information is available about the company: . 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 stateinent above. Sales commissions are 10% of sales for any product. * 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 com- pany's activities indicates that the equipment is used 30% of the time to produce cook- books, 50% of the time to produce travel guides, and 20% of the time to produce handy spellers. * 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 10ol per year. The warehouse contains 48,000 square feet of space, of which 7,200 square Ieet is used by the cookbook line, 24,000 square feet by the travel guide line, and 16,800 square feet by the handy speller line. The general sales cost above includes the salary of the sales manager and other sales costs not traceable to any specific product line. This cost has been allocated to the product lines on the basis of sales dollars.
Transcribed Image Text:Diversified Products, Inc., has recently acquired a small publishing company that Diversified eOBLEM 13-28 Basic Segment Reporting; Activity-Based Cost Assignment [LO1] Ddacts intends to operate as one of its investment centers. The newly acquired company us three books that it offers for sale-a cookbook, a travel guide, and a handy speller. Cech book sells for $10. The publishing company's most recent monthly income statement is given below: Product Line Total Travel Guide Handy Speller Company Cookbook Sales $300,000 $90,000 $150,000 $60,000 Expenses: Printing costs Advertising . General sales. Salaries Equipment depreciation Sales commissions General administration. 102,000 36,000 27,000 63,000 19,500 9,000 9,000 12,000 13,500 5,400 18,000 3,000 9,000 14,000 3,000 18,000 3,600 6,000 3,000 6,000 33,000 9,000 3,000 30,000 15,000 14,000 6,000 1,000 42,000 14,000 Warehouse rent 12,000 3,600 2,400 1,000 Depreciation-office facilities 3,000 1,000 Total expenses. 285,000 94,500 139,500 51,000 Net operating income (loss). $ 15,000 $ (4,500) $ 10,500 $ 9,000 The following additional information is available about the company: . 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 stateinent above. Sales commissions are 10% of sales for any product. * 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 com- pany's activities indicates that the equipment is used 30% of the time to produce cook- books, 50% of the time to produce travel guides, and 20% of the time to produce handy spellers. * 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 10ol per year. The warehouse contains 48,000 square feet of space, of which 7,200 square Ieet is used by the cookbook line, 24,000 square feet by the travel guide line, and 16,800 square feet by the handy speller line. The general sales cost above includes the salary of the sales manager and other sales costs not traceable to any specific product line. This cost has been allocated to the product lines on the basis of sales dollars.
2. After seeing the income statement in the main body of the problem, management has decidel 1. Prepare a new contribution format segmented income statement for the month. Adjust alloca f. All other costs are traceable to the three product lines in the amounts shown on the stateme; e. The general administration cost and depreciation of office facilities both relate -, b. Based on the statement you have prepared, do you agree with the decision to focus all to eliminate the cookbook because it is not returning 'a profit, and to focus all availahie tions of equipment depreciation and of warehouse rent as indicated by the additional int The management of Diversified Products, Inc., is anxious to improve the new investmare administration of the company as a whole. These costs have been allocated equally to th available for all three product lines. (Hint: Compute the contribution margin rati - available resources on promoting the travel guide? Assume that an ample market is Based on the statement you have prepared, do you agree with the decision to eliminate Chapter 13 three product lines. above. center's 5% return on sales. Required: resources on promoting the travel guide. a. available for all three product lines. (Hint: Compute the contribution margin ra each product.)
Transcribed Image Text:2. After seeing the income statement in the main body of the problem, management has decidel 1. Prepare a new contribution format segmented income statement for the month. Adjust alloca f. All other costs are traceable to the three product lines in the amounts shown on the stateme; e. The general administration cost and depreciation of office facilities both relate -, b. Based on the statement you have prepared, do you agree with the decision to focus all to eliminate the cookbook because it is not returning 'a profit, and to focus all availahie tions of equipment depreciation and of warehouse rent as indicated by the additional int The management of Diversified Products, Inc., is anxious to improve the new investmare administration of the company as a whole. These costs have been allocated equally to th available for all three product lines. (Hint: Compute the contribution margin rati - available resources on promoting the travel guide? Assume that an ample market is Based on the statement you have prepared, do you agree with the decision to eliminate Chapter 13 three product lines. above. center's 5% return on sales. Required: resources on promoting the travel guide. a. available for all three product lines. (Hint: Compute the contribution margin ra each product.)
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