Jem Hernandez owns Jem's Special Event Planning Service, a full-service event planner. Jem does much of the work herself and hires additional help as needed. She plans corporate events, weddings, and special occasion parties. Each of these is considered a separate line of business due to the specialized aspects of each type of event. Last year, Jem's accountant provided the following segmented income statement: Corporate Wedding Special Occasion Total Revenue $55,300 $195,000 $168,000 $418,300 Less variable costs (22,120) (97,500) (50,400) (170,020) Contribution margin $33,180 $97,500 $117,600 $248,280 Less common fixed expenses: Fixed operating expense (175,000) Fixed selling (55,000) Operating income $18,280 Jem was not pleased with last year's results; corporate events were down considerably from the previous few years. In addition, she thinks that dealing with the corporate party-throwers may be more work than it is worth. Two important aspects of event planning are negotiating with vendors (e.g., caterers, florists, bands and orchestras, and venues) on price and setting up for and being present at the event itself. The corporate negotiating seemed to consume extra time, and their restrictions on the price they would pay made the negotiations particularly difficult. She decided to gather some data on the negotiation and setting-up activities: Corporate Wedding Special Occasion Negotiating hours 400 1,200 400 Setting-up hours 100 400 500 Total cost of negotiating $40,000 Total cost of setting up $60,000 Required: Question Content Area 1. Prepare a segmented income statement using the activity data for negotiating and setting up. The total cost of these two activities can be subtracted from the fixed operating expense. The remaining fixed operating expense will be the common fixed operating expense. blank Corporate Wedding Special Occasion Total $- Select - $- Select - $- Select - - Select - - Select - - Select - - Select - - Select - Contribution margin $fill in the blank 70c02e002fd8ffe_11 $fill in the blank 70c02e002fd8ffe_12 $fill in the blank 70c02e002fd8ffe_13 $fill in the blank 70c02e002fd8ffe_14 Less direct fixed expenses: - Select - - Select - - Select - - Select - - Select - - Select - - Select - - Select - Product margin $fill in the blank 70c02e002fd8ffe_25 $fill in the blank 70c02e002fd8ffe_26 $fill in the blank 70c02e002fd8ffe_27 $fill in the blank 70c02e002fd8ffe_28 Less common fixed expenses: - Select - - Select - $- Select - Question Content Area 2. Jem believes that next year will be even worse. Her hunch is that corporate business will be down and that these clients will be especially intent on saving money by reducing the rate paid to Jem. She believes total corporate revenue may decrease by 25 percent overall, while the variable costs associated with those events will only decrease by 20 percent. On the other hand, Jem expects weddings to increase. Her reputation is growing and she thinks she can raise her revenues in this area by 15 percent even if the number of weddings does not increase. As a result, she expects variable costs of weddings to remain static. The special occasions (wedding anniversary parties, bar and bat mitzvahs, and so on) line is also expected to increase—with revenue and variable costs expected to increase by 10 percent. Jem does not know quite what to expect with respect to the negotiating and setting-up activities, so she thinks she'll just keep those constant for planning purposes. Prepare a segmented income statement using the activity data and these assumptions. blank Corporate Wedding Special Occasion Total $- Select - $- Select - $- Select - $- Select - - Select - - Select - - Select - - Select - Contribution margin $fill in the blank 863880fe505f065_11 $fill in the blank 863880fe505f065_12 $fill in the blank 863880fe505f065_13 $fill in the blank 863880fe505f065_14 Less direct fixed expenses: - Select - - Select - - Select - - Select - - Select - - Select - - Select - - Select - Product margin $fill in the blank 863880fe505f065_25 $fill in the blank 863880fe505f065_26 $fill in the blank 863880fe505f065_27 $fill in the blank 863880fe505f065_28 Less common fixed expenses: - Select - - Select - $- Select - Question Content Area What does this income statement suggest about dropping the corporate segment?

Jem Hernandez owns Jem's Special Event Planning Service, a full-service event planner. Jem does much of the work herself and hires additional help as needed. She plans corporate events, weddings, and special occasion parties. Each of these is considered a separate line of business due to the specialized aspects of each type of event. Last year, Jem's accountant provided the following segmented income statement: Corporate Wedding Special Occasion Total Revenue $55,300 $195,000 $168,000 $418,300 Less variable costs (22,120) (97,500) (50,400) (170,020) Contribution margin $33,180 $97,500 $117,600 $248,280 Less common fixed expenses: Fixed operating expense (175,000) Fixed selling (55,000) Operating income $18,280 Jem was not pleased with last year's results; corporate events were down considerably from the previous few years. In addition, she thinks that dealing with the corporate party-throwers may be more work than it is worth. Two important aspects of event planning are negotiating with vendors (e.g., caterers, florists, bands and orchestras, and venues) on price and setting up for and being present at the event itself. The corporate negotiating seemed to consume extra time, and their restrictions on the price they would pay made the negotiations particularly difficult. She decided to gather some data on the negotiation and setting-up activities: Corporate Wedding Special Occasion Negotiating hours 400 1,200 400 Setting-up hours 100 400 500 Total cost of negotiating $40,000 Total cost of setting up $60,000 Required: Question Content Area 1. Prepare a segmented income statement using the activity data for negotiating and setting up. The total cost of these two activities can be subtracted from the fixed operating expense. The remaining fixed operating expense will be the common fixed operating expense. blank Corporate Wedding Special Occasion Total $- Select - $- Select - $- Select - - Select - - Select - - Select - - Select - - Select - Contribution margin $fill in the blank 70c02e002fd8ffe_11 $fill in the blank 70c02e002fd8ffe_12 $fill in the blank 70c02e002fd8ffe_13 $fill in the blank 70c02e002fd8ffe_14 Less direct fixed expenses: - Select - - Select - - Select - - Select - - Select - - Select - - Select - - Select - Product margin $fill in the blank 70c02e002fd8ffe_25 $fill in the blank 70c02e002fd8ffe_26 $fill in the blank 70c02e002fd8ffe_27 $fill in the blank 70c02e002fd8ffe_28 Less common fixed expenses: - Select - - Select - $- Select - Question Content Area 2. Jem believes that next year will be even worse. Her hunch is that corporate business will be down and that these clients will be especially intent on saving money by reducing the rate paid to Jem. She believes total corporate revenue may decrease by 25 percent overall, while the variable costs associated with those events will only decrease by 20 percent. On the other hand, Jem expects weddings to increase. Her reputation is growing and she thinks she can raise her revenues in this area by 15 percent even if the number of weddings does not increase. As a result, she expects variable costs of weddings to remain static. The special occasions (wedding anniversary parties, bar and bat mitzvahs, and so on) line is also expected to increase—with revenue and variable costs expected to increase by 10 percent. Jem does not know quite what to expect with respect to the negotiating and setting-up activities, so she thinks she'll just keep those constant for planning purposes. Prepare a segmented income statement using the activity data and these assumptions. blank Corporate Wedding Special Occasion Total $- Select - $- Select - $- Select - $- Select - - Select - - Select - - Select - - Select - Contribution margin $fill in the blank 863880fe505f065_11 $fill in the blank 863880fe505f065_12 $fill in the blank 863880fe505f065_13 $fill in the blank 863880fe505f065_14 Less direct fixed expenses: - Select - - Select - - Select - - Select - - Select - - Select - - Select - - Select - Product margin $fill in the blank 863880fe505f065_25 $fill in the blank 863880fe505f065_26 $fill in the blank 863880fe505f065_27 $fill in the blank 863880fe505f065_28 Less common fixed expenses: - Select - - Select - $- Select - Question Content Area What does this income statement suggest about dropping the corporate segment?

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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Question Content Area

1. Prepare a segmented income statement using the activity data for negotiating and setting up. The total cost of these two activities can be subtracted from the fixed operating expense. The remaining fixed operating expense will be the common fixed operating expense.

blank

	Corporate	Wedding	Special Occasion	Total
	$- Select -	$- Select -	$- Select -	- Select -
	- Select -	- Select -	- Select -	- Select -
Contribution margin	$fill in the blank 70c02e002fd8ffe_11	$fill in the blank 70c02e002fd8ffe_12	$fill in the blank 70c02e002fd8ffe_13	$fill in the blank 70c02e002fd8ffe_14
Less direct fixed expenses:
	- Select -	- Select -	- Select -	- Select -
	- Select -	- Select -	- Select -	- Select -
Product margin	$fill in the blank 70c02e002fd8ffe_25	$fill in the blank 70c02e002fd8ffe_26	$fill in the blank 70c02e002fd8ffe_27	$fill in the blank 70c02e002fd8ffe_28
Less common fixed expenses:
				- Select -
				- Select -
				$- Select -

Question Content Area

2. Jem believes that next year will be even worse. Her hunch is that corporate business will be down and that these clients will be especially intent on saving money by reducing the rate paid to Jem. She believes total corporate revenue may decrease by 25 percent overall, while the variable costs associated with those events will only decrease by 20 percent. On the other hand, Jem expects weddings to increase. Her reputation is growing and she thinks she can raise her revenues in this area by 15 percent even if the number of weddings does not increase. As a result, she expects variable costs of weddings to remain static. The special occasions (wedding anniversary parties, bar and bat mitzvahs, and so on) line is also expected to increase—with revenue and variable costs expected to increase by 10 percent. Jem does not know quite what to expect with respect to the negotiating and setting-up activities, so she thinks she'll just keep those constant for planning purposes. Prepare a segmented income statement using the activity data and these assumptions.

blank

	Corporate	Wedding	Special Occasion	Total
	$- Select -	$- Select -	$- Select -	$- Select -
	- Select -	- Select -	- Select -	- Select -
Contribution margin	$fill in the blank 863880fe505f065_11	$fill in the blank 863880fe505f065_12	$fill in the blank 863880fe505f065_13	$fill in the blank 863880fe505f065_14
Less direct fixed expenses:
	- Select -	- Select -	- Select -	- Select -
	- Select -	- Select -	- Select -	- Select -
Product margin	$fill in the blank 863880fe505f065_25	$fill in the blank 863880fe505f065_26	$fill in the blank 863880fe505f065_27	$fill in the blank 863880fe505f065_28
Less common fixed expenses:
				- Select -
				- Select -
				$- Select -

Question Content Area

What does this income statement suggest about dropping the corporate segment?

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	Corporate	Wedding	Special Occasion	Total
Revenue	$55,300	$195,000	$168,000	$418,300
Less variable costs	(22,120)	(97,500)	(50,400)	(170,020)
Contribution margin	$33,180	$97,500	$117,600	$248,280
Less common fixed expenses:
Fixed operating expense				(175,000)
Fixed selling				(55,000)
Operating income				$18,280