Diversified Products, Inc., has recently acquired a small publishing company that DiversifiedeOBLEM 13-28 Basic Segment Reporting; Activity-Based Cost Assignment [LO1]Ddacts intends to operate as one of its investment centers. The newly acquired companyus 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 isgiven below:Product LineTotalTravelGuideHandySpellerCompanyCookbookSales$300,000$90,000$150,000$60,000Expenses:Printing costsAdvertising .General sales.SalariesEquipment depreciationSales commissionsGeneral administration.102,00036,00027,00063,00019,5009,0009,00012,00013,5005,40018,0003,0009,00014,0003,00018,0003,6006,0003,0006,00033,0009,0003,00030,00015,00014,0006,0001,00042,00014,000Warehouse rent12,0003,6002,4001,000Depreciation-office facilities3,0001,000Total expenses.285,00094,500139,50051,000Net operating income (loss).$ 15,000$ (4,500)$ 10,500$ 9,000The following additional information is available about the company:. Only printing costs and sales commissions are variable; all other costs are fixed. The printingcosts (which include materials, labor, and variable overhead) are traceable to the threeproduct lines as shown in the stateinent above. Sales commissions are 10% of sales for anyproduct.* The same equipment is used to produce all three books, so the equipment depreciationcost 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 handyspellers.* The warehouse is used to store finished units of product, so the rental cost has been allocatedto the product lines on the basis of sales dollars. The warehouse rental cost is $3 per square10ol per year. The warehouse contains 48,000 square feet of space, of which 7,200 squareIeet is used by the cookbook line, 24,000 square feet by the travel guide line, and 16,800square feet by the handy speller line.The general sales cost above includes the salary of the sales manager and other sales costsnot traceable to any specific product line. This cost has been allocated to the product lines onthe basis of sales dollars. 2. After seeing the income statement in the main body of the problem, management has decidel1. Prepare a new contribution format segmented income statement for the month. Adjust allocaf. 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 allto eliminate the cookbook because it is not returning 'a profit, and to focus all availahietions of equipment depreciation and of warehouse rent as indicated by the additional intThe management of Diversified Products, Inc., is anxious to improve the new investmareadministration of the company as a whole. These costs have been allocated equally to thavailable for all three product lines. (Hint: Compute the contribution margin rati -available resources on promoting the travel guide? Assume that an ample market isBased on the statement you have prepared, do you agree with the decision to eliminateChapter 13three 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 raeach product.)

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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

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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