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

Question

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Answer 1

Question

Chapter 8, Problem 55P

1.

To determine

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

1.

Expert Solution

Explanation of Solution

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 ($)
Sales¹	1,560,000	2,175,000	3,735,000
Less variable cost of goods sold:²	1,170,000	2,025,000	3,195,000
Contribution margin	390,000	150,000	540,000
Less direct fixed expenses:	184,000	142,500	326,500
Segment margin	206,000	7,500	213,500
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. Calculation of variable cost of goods sold for blenders:

Variable cost of goods sold=Units sold×Variable expense per unit=65,000units×$18=$1,170,000

Hence, the amount of variable cost of goods sold for blenders is $1,170,000.

Calculation of variable cost of goods sold for coffee makers:

Variable cost of goods sold=Units sold×Variable expense per unit=75,000units×$27=$2,025,000

Hence, the amount of variable cost of goods sold for coffee makers is $2,025,000.

3. Calculation of common fixed expenses:

Common fixed expenses=(Total fixed costs−Direct fixed expense for blenders−Direct fixed expense for coffee makers)=$340,000−$184,000−$142,500=$13,500

Hence, the common fixed expense is $13,500.

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.

2.

Expert Solution

Explanation of Solution

If Company A drops the coffee maker line then the profit will get reduced by $7,500 (segment margin). If Company A drops the blenders line then the profit will get reduced by $206,000. If any of the alternatives is rejected, then the relevant cost of the rejected alternative will not be recorded in the segmented income statement.

3.

To determine

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

3.

Expert Solution

Explanation of Solution

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

Company A
Segmented Income Statement
For the Previous Year
	Blenders ($)	Coffee Makers ($)	Total ($)
Sales¹	1,775,000	2,175,000	3,950,000
Less variable cost of goods sold²:	1,350,000	2,025,000	3,375,000
Contribution margin	425,000	150,000	575,000
Less direct fixed expenses:	184,000	142,500	326,500
Segment margin	241,000	7,500	248,500
Less common fixed expenses³:			13,500
Operating income			235,000

Table (2)

The amount of operating income is $235,000. The amount of profit before additional units were produced was $200,000. It can be concluded that if the company produced additional 10,000 units, then the operating income will be increased by $35,000.

Working Notes:

1. Calculation of sales for blenders:

Sales=(Units sold×Sales price)+(Additional units×Sales price)=(65,000units×$24)+($10,000units×$21.5)=$1,560,000+$215,000=$1,775,000

Hence, the amount of sales for blenders is $1,775,000.

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. Calculation of variable cost of goods sold for blenders:

Variable cost of goods sold=(Units sold+Additional units)×Variable expense per unit=(65,000units+10,000units)×$18=75,000units×$18=$1,350,000

Hence, the amount of variable cost of goods sold for blenders is $1,350,000.

Calculation of variable cost of goods sold for coffee makers:

Variable cost of goods sold=Units sold×Variable expense per unit=75,000units×$27=$2,025,000

Hence, the amount of variable cost of goods sold for coffee makers is $2,025,000.

3. Calculation of common fixed expenses:

Common fixed expenses=(Total fixed costs−Direct fixed expense for blenders−Direct fixed expense for coffee makers)=$340,000−$184,000−$142,500=$13,500

Hence, the common fixed expense is $13,500.

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Students have asked these similar questions

Segmented Income Statements, Product-Line AnalysisAlard 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 avoidedif the coffee makers are not produced. Revenue and variable cost information follows: Required:1. Prepare segmented income statements. Separate direct and common fixed costs.2. What would the effect be on Alard’s profit if the coffee maker line is dropped? Theblender line?3. What would the effect be on firm profits if an additional 10,000 blenders could beproduced (using existing capacity) and sold for $21.50 on a special-order basis? Existingsales would be unaffected by the special order.

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Answer 2

Question

Chapter 8, Problem 55P

1.

To determine

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

1.

Expert Solution

Explanation of Solution

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 ($)
Sales¹	1,560,000	2,175,000	3,735,000
Less variable cost of goods sold:²	1,170,000	2,025,000	3,195,000
Contribution margin	390,000	150,000	540,000
Less direct fixed expenses:	184,000	142,500	326,500
Segment margin	206,000	7,500	213,500
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. Calculation of variable cost of goods sold for blenders:

Variable cost of goods sold=Units sold×Variable expense per unit=65,000units×$18=$1,170,000

Hence, the amount of variable cost of goods sold for blenders is $1,170,000.

Calculation of variable cost of goods sold for coffee makers:

Variable cost of goods sold=Units sold×Variable expense per unit=75,000units×$27=$2,025,000

Hence, the amount of variable cost of goods sold for coffee makers is $2,025,000.

3. Calculation of common fixed expenses:

Common fixed expenses=(Total fixed costs−Direct fixed expense for blenders−Direct fixed expense for coffee makers)=$340,000−$184,000−$142,500=$13,500

Hence, the common fixed expense is $13,500.

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.

2.

Expert Solution

Explanation of Solution

If Company A drops the coffee maker line then the profit will get reduced by $7,500 (segment margin). If Company A drops the blenders line then the profit will get reduced by $206,000. If any of the alternatives is rejected, then the relevant cost of the rejected alternative will not be recorded in the segmented income statement.

3.

To determine

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

3.

Expert Solution

Explanation of Solution

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

Company A
Segmented Income Statement
For the Previous Year
	Blenders ($)	Coffee Makers ($)	Total ($)
Sales¹	1,775,000	2,175,000	3,950,000
Less variable cost of goods sold²:	1,350,000	2,025,000	3,375,000
Contribution margin	425,000	150,000	575,000
Less direct fixed expenses:	184,000	142,500	326,500
Segment margin	241,000	7,500	248,500
Less common fixed expenses³:			13,500
Operating income			235,000

Table (2)

The amount of operating income is $235,000. The amount of profit before additional units were produced was $200,000. It can be concluded that if the company produced additional 10,000 units, then the operating income will be increased by $35,000.

Working Notes:

1. Calculation of sales for blenders:

Sales=(Units sold×Sales price)+(Additional units×Sales price)=(65,000units×$24)+($10,000units×$21.5)=$1,560,000+$215,000=$1,775,000

Hence, the amount of sales for blenders is $1,775,000.

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. Calculation of variable cost of goods sold for blenders:

Variable cost of goods sold=(Units sold+Additional units)×Variable expense per unit=(65,000units+10,000units)×$18=75,000units×$18=$1,350,000

Hence, the amount of variable cost of goods sold for blenders is $1,350,000.

Calculation of variable cost of goods sold for coffee makers:

Variable cost of goods sold=Units sold×Variable expense per unit=75,000units×$27=$2,025,000

Hence, the amount of variable cost of goods sold for coffee makers is $2,025,000.

3. Calculation of common fixed expenses:

Common fixed expenses=(Total fixed costs−Direct fixed expense for blenders−Direct fixed expense for coffee makers)=$340,000−$184,000−$142,500=$13,500

Hence, the common fixed expense is $13,500.

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Answer 3

Question

Chapter 8, Problem 55P

1.

To determine

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

1.

Expert Solution

Explanation of Solution

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 ($)
Sales¹	1,560,000	2,175,000	3,735,000
Less variable cost of goods sold:²	1,170,000	2,025,000	3,195,000
Contribution margin	390,000	150,000	540,000
Less direct fixed expenses:	184,000	142,500	326,500
Segment margin	206,000	7,500	213,500
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. Calculation of variable cost of goods sold for blenders:

Variable cost of goods sold=Units sold×Variable expense per unit=65,000units×$18=$1,170,000

Hence, the amount of variable cost of goods sold for blenders is $1,170,000.

Calculation of variable cost of goods sold for coffee makers:

Variable cost of goods sold=Units sold×Variable expense per unit=75,000units×$27=$2,025,000

Hence, the amount of variable cost of goods sold for coffee makers is $2,025,000.

3. Calculation of common fixed expenses:

Common fixed expenses=(Total fixed costs−Direct fixed expense for blenders−Direct fixed expense for coffee makers)=$340,000−$184,000−$142,500=$13,500

Hence, the common fixed expense is $13,500.

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.

2.

Expert Solution

Explanation of Solution

If Company A drops the coffee maker line then the profit will get reduced by $7,500 (segment margin). If Company A drops the blenders line then the profit will get reduced by $206,000. If any of the alternatives is rejected, then the relevant cost of the rejected alternative will not be recorded in the segmented income statement.

3.

To determine

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

3.

Expert Solution

Explanation of Solution

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

Company A
Segmented Income Statement
For the Previous Year
	Blenders ($)	Coffee Makers ($)	Total ($)
Sales¹	1,775,000	2,175,000	3,950,000
Less variable cost of goods sold²:	1,350,000	2,025,000	3,375,000
Contribution margin	425,000	150,000	575,000
Less direct fixed expenses:	184,000	142,500	326,500
Segment margin	241,000	7,500	248,500
Less common fixed expenses³:			13,500
Operating income			235,000

Table (2)

The amount of operating income is $235,000. The amount of profit before additional units were produced was $200,000. It can be concluded that if the company produced additional 10,000 units, then the operating income will be increased by $35,000.

Working Notes:

1. Calculation of sales for blenders:

Sales=(Units sold×Sales price)+(Additional units×Sales price)=(65,000units×$24)+($10,000units×$21.5)=$1,560,000+$215,000=$1,775,000

Hence, the amount of sales for blenders is $1,775,000.

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. Calculation of variable cost of goods sold for blenders:

Variable cost of goods sold=(Units sold+Additional units)×Variable expense per unit=(65,000units+10,000units)×$18=75,000units×$18=$1,350,000

Hence, the amount of variable cost of goods sold for blenders is $1,350,000.

Calculation of variable cost of goods sold for coffee makers:

Variable cost of goods sold=Units sold×Variable expense per unit=75,000units×$27=$2,025,000

Hence, the amount of variable cost of goods sold for coffee makers is $2,025,000.

3. Calculation of common fixed expenses:

Common fixed expenses=(Total fixed costs−Direct fixed expense for blenders−Direct fixed expense for coffee makers)=$340,000−$184,000−$142,500=$13,500

Hence, the common fixed expense is $13,500.

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Answer 4

Question

Chapter 8, Problem 55P

1.

To determine

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

1.

Expert Solution

Explanation of Solution

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 ($)
Sales¹	1,560,000	2,175,000	3,735,000
Less variable cost of goods sold:²	1,170,000	2,025,000	3,195,000
Contribution margin	390,000	150,000	540,000
Less direct fixed expenses:	184,000	142,500	326,500
Segment margin	206,000	7,500	213,500
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. Calculation of variable cost of goods sold for blenders:

Variable cost of goods sold=Units sold×Variable expense per unit=65,000units×$18=$1,170,000

Hence, the amount of variable cost of goods sold for blenders is $1,170,000.

Calculation of variable cost of goods sold for coffee makers:

Variable cost of goods sold=Units sold×Variable expense per unit=75,000units×$27=$2,025,000

Hence, the amount of variable cost of goods sold for coffee makers is $2,025,000.

3. Calculation of common fixed expenses:

Common fixed expenses=(Total fixed costs−Direct fixed expense for blenders−Direct fixed expense for coffee makers)=$340,000−$184,000−$142,500=$13,500

Hence, the common fixed expense is $13,500.

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.

2.

Expert Solution

Explanation of Solution

If Company A drops the coffee maker line then the profit will get reduced by $7,500 (segment margin). If Company A drops the blenders line then the profit will get reduced by $206,000. If any of the alternatives is rejected, then the relevant cost of the rejected alternative will not be recorded in the segmented income statement.

3.

To determine

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

3.

Expert Solution

Explanation of Solution

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

Company A
Segmented Income Statement
For the Previous Year
	Blenders ($)	Coffee Makers ($)	Total ($)
Sales¹	1,775,000	2,175,000	3,950,000
Less variable cost of goods sold²:	1,350,000	2,025,000	3,375,000
Contribution margin	425,000	150,000	575,000
Less direct fixed expenses:	184,000	142,500	326,500
Segment margin	241,000	7,500	248,500
Less common fixed expenses³:			13,500
Operating income			235,000

Table (2)

The amount of operating income is $235,000. The amount of profit before additional units were produced was $200,000. It can be concluded that if the company produced additional 10,000 units, then the operating income will be increased by $35,000.

Working Notes:

1. Calculation of sales for blenders:

Sales=(Units sold×Sales price)+(Additional units×Sales price)=(65,000units×$24)+($10,000units×$21.5)=$1,560,000+$215,000=$1,775,000

Hence, the amount of sales for blenders is $1,775,000.

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. Calculation of variable cost of goods sold for blenders:

Variable cost of goods sold=(Units sold+Additional units)×Variable expense per unit=(65,000units+10,000units)×$18=75,000units×$18=$1,350,000

Hence, the amount of variable cost of goods sold for blenders is $1,350,000.

Calculation of variable cost of goods sold for coffee makers:

Variable cost of goods sold=Units sold×Variable expense per unit=75,000units×$27=$2,025,000

Hence, the amount of variable cost of goods sold for coffee makers is $2,025,000.

3. Calculation of common fixed expenses:

Common fixed expenses=(Total fixed costs−Direct fixed expense for blenders−Direct fixed expense for coffee makers)=$340,000−$184,000−$142,500=$13,500

Hence, the common fixed expense is $13,500.

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Answer 5

Chapter 8, Problem 55P

1.

To determine

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

1.

Expert Solution

Explanation of Solution

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 ($)
Sales¹	1,560,000	2,175,000	3,735,000
Less variable cost of goods sold:²	1,170,000	2,025,000	3,195,000
Contribution margin	390,000	150,000	540,000
Less direct fixed expenses:	184,000	142,500	326,500
Segment margin	206,000	7,500	213,500
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. Calculation of variable cost of goods sold for blenders:

Variable cost of goods sold=Units sold×Variable expense per unit=65,000units×$18=$1,170,000

Hence, the amount of variable cost of goods sold for blenders is $1,170,000.

Calculation of variable cost of goods sold for coffee makers:

Variable cost of goods sold=Units sold×Variable expense per unit=75,000units×$27=$2,025,000

Hence, the amount of variable cost of goods sold for coffee makers is $2,025,000.

3. Calculation of common fixed expenses:

Common fixed expenses=(Total fixed costs−Direct fixed expense for blenders−Direct fixed expense for coffee makers)=$340,000−$184,000−$142,500=$13,500

Hence, the common fixed expense is $13,500.

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.

2.

Expert Solution

Explanation of Solution

If Company A drops the coffee maker line then the profit will get reduced by $7,500 (segment margin). If Company A drops the blenders line then the profit will get reduced by $206,000. If any of the alternatives is rejected, then the relevant cost of the rejected alternative will not be recorded in the segmented income statement.

3.

To determine

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

3.

Expert Solution

Explanation of Solution

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

Company A
Segmented Income Statement
For the Previous Year
	Blenders ($)	Coffee Makers ($)	Total ($)
Sales¹	1,775,000	2,175,000	3,950,000
Less variable cost of goods sold²:	1,350,000	2,025,000	3,375,000
Contribution margin	425,000	150,000	575,000
Less direct fixed expenses:	184,000	142,500	326,500
Segment margin	241,000	7,500	248,500
Less common fixed expenses³:			13,500
Operating income			235,000

Table (2)

The amount of operating income is $235,000. The amount of profit before additional units were produced was $200,000. It can be concluded that if the company produced additional 10,000 units, then the operating income will be increased by $35,000.

Working Notes:

1. Calculation of sales for blenders:

Sales=(Units sold×Sales price)+(Additional units×Sales price)=(65,000units×$24)+($10,000units×$21.5)=$1,560,000+$215,000=$1,775,000

Hence, the amount of sales for blenders is $1,775,000.

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. Calculation of variable cost of goods sold for blenders:

Variable cost of goods sold=(Units sold+Additional units)×Variable expense per unit=(65,000units+10,000units)×$18=75,000units×$18=$1,350,000

Hence, the amount of variable cost of goods sold for blenders is $1,350,000.

Calculation of variable cost of goods sold for coffee makers:

Variable cost of goods sold=Units sold×Variable expense per unit=75,000units×$27=$2,025,000

Hence, the amount of variable cost of goods sold for coffee makers is $2,025,000.

3. Calculation of common fixed expenses:

Common fixed expenses=(Total fixed costs−Direct fixed expense for blenders−Direct fixed expense for coffee makers)=$340,000−$184,000−$142,500=$13,500

Hence, the common fixed expense is $13,500.

Answer 6

Chapter 8, Problem 55P

1.

To determine

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

1.

Expert Solution

Explanation of Solution

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 ($)
Sales¹	1,560,000	2,175,000	3,735,000
Less variable cost of goods sold:²	1,170,000	2,025,000	3,195,000
Contribution margin	390,000	150,000	540,000
Less direct fixed expenses:	184,000	142,500	326,500
Segment margin	206,000	7,500	213,500
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. Calculation of variable cost of goods sold for blenders:

Variable cost of goods sold=Units sold×Variable expense per unit=65,000units×$18=$1,170,000

Hence, the amount of variable cost of goods sold for blenders is $1,170,000.

Calculation of variable cost of goods sold for coffee makers:

Variable cost of goods sold=Units sold×Variable expense per unit=75,000units×$27=$2,025,000

Hence, the amount of variable cost of goods sold for coffee makers is $2,025,000.

3. Calculation of common fixed expenses:

Common fixed expenses=(Total fixed costs−Direct fixed expense for blenders−Direct fixed expense for coffee makers)=$340,000−$184,000−$142,500=$13,500

Hence, the common fixed expense is $13,500.

Answer 7

Chapter 8, Problem 55P

1.

To determine

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

Answer 8

1.

Expert Solution

Explanation of Solution

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 ($)
Sales¹	1,560,000	2,175,000	3,735,000
Less variable cost of goods sold:²	1,170,000	2,025,000	3,195,000
Contribution margin	390,000	150,000	540,000
Less direct fixed expenses:	184,000	142,500	326,500
Segment margin	206,000	7,500	213,500
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. Calculation of variable cost of goods sold for blenders:

Variable cost of goods sold=Units sold×Variable expense per unit=65,000units×$18=$1,170,000

Hence, the amount of variable cost of goods sold for blenders is $1,170,000.

Calculation of variable cost of goods sold for coffee makers:

Variable cost of goods sold=Units sold×Variable expense per unit=75,000units×$27=$2,025,000

Hence, the amount of variable cost of goods sold for coffee makers is $2,025,000.

3. Calculation of common fixed expenses:

Common fixed expenses=(Total fixed costs−Direct fixed expense for blenders−Direct fixed expense for coffee makers)=$340,000−$184,000−$142,500=$13,500

Hence, the common fixed expense is $13,500.

Answer 9

1.

Expert Solution

Answer 10

1.

Expert Solution

Answer 11

Expert Solution

Answer 12

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.

2.

Expert Solution

Explanation of Solution

If Company A drops the coffee maker line then the profit will get reduced by $7,500 (segment margin). If Company A drops the blenders line then the profit will get reduced by $206,000. If any of the alternatives is rejected, then the relevant cost of the rejected alternative will not be recorded in the segmented income statement.

Answer 13

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.

Answer 14

2.

Expert Solution

Explanation of Solution

If Company A drops the coffee maker line then the profit will get reduced by $7,500 (segment margin). If Company A drops the blenders line then the profit will get reduced by $206,000. If any of the alternatives is rejected, then the relevant cost of the rejected alternative will not be recorded in the segmented income statement.

Answer 15

2.

Expert Solution

Answer 16

2.

Expert Solution

Answer 17

Expert Solution

Answer 18

3.

To determine

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

3.

Expert Solution

Explanation of Solution

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

Company A
Segmented Income Statement
For the Previous Year
	Blenders ($)	Coffee Makers ($)	Total ($)
Sales¹	1,775,000	2,175,000	3,950,000
Less variable cost of goods sold²:	1,350,000	2,025,000	3,375,000
Contribution margin	425,000	150,000	575,000
Less direct fixed expenses:	184,000	142,500	326,500
Segment margin	241,000	7,500	248,500
Less common fixed expenses³:			13,500
Operating income			235,000

Table (2)

The amount of operating income is $235,000. The amount of profit before additional units were produced was $200,000. It can be concluded that if the company produced additional 10,000 units, then the operating income will be increased by $35,000.

Working Notes:

1. Calculation of sales for blenders:

Sales=(Units sold×Sales price)+(Additional units×Sales price)=(65,000units×$24)+($10,000units×$21.5)=$1,560,000+$215,000=$1,775,000

Hence, the amount of sales for blenders is $1,775,000.

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. Calculation of variable cost of goods sold for blenders:

Variable cost of goods sold=(Units sold+Additional units)×Variable expense per unit=(65,000units+10,000units)×$18=75,000units×$18=$1,350,000

Hence, the amount of variable cost of goods sold for blenders is $1,350,000.

Calculation of variable cost of goods sold for coffee makers:

Variable cost of goods sold=Units sold×Variable expense per unit=75,000units×$27=$2,025,000

Hence, the amount of variable cost of goods sold for coffee makers is $2,025,000.

3. Calculation of common fixed expenses:

Common fixed expenses=(Total fixed costs−Direct fixed expense for blenders−Direct fixed expense for coffee makers)=$340,000−$184,000−$142,500=$13,500

Hence, the common fixed expense is $13,500.

Answer 19

3.

To determine

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

Answer 20

3.

Expert Solution

Explanation of Solution

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

Company A
Segmented Income Statement
For the Previous Year
	Blenders ($)	Coffee Makers ($)	Total ($)
Sales¹	1,775,000	2,175,000	3,950,000
Less variable cost of goods sold²:	1,350,000	2,025,000	3,375,000
Contribution margin	425,000	150,000	575,000
Less direct fixed expenses:	184,000	142,500	326,500
Segment margin	241,000	7,500	248,500
Less common fixed expenses³:			13,500
Operating income			235,000

Table (2)

The amount of operating income is $235,000. The amount of profit before additional units were produced was $200,000. It can be concluded that if the company produced additional 10,000 units, then the operating income will be increased by $35,000.

Working Notes:

1. Calculation of sales for blenders:

Sales=(Units sold×Sales price)+(Additional units×Sales price)=(65,000units×$24)+($10,000units×$21.5)=$1,560,000+$215,000=$1,775,000

Hence, the amount of sales for blenders is $1,775,000.

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. Calculation of variable cost of goods sold for blenders:

Variable cost of goods sold=(Units sold+Additional units)×Variable expense per unit=(65,000units+10,000units)×$18=75,000units×$18=$1,350,000

Hence, the amount of variable cost of goods sold for blenders is $1,350,000.

Calculation of variable cost of goods sold for coffee makers:

Variable cost of goods sold=Units sold×Variable expense per unit=75,000units×$27=$2,025,000

Hence, the amount of variable cost of goods sold for coffee makers is $2,025,000.

3. Calculation of common fixed expenses:

Common fixed expenses=(Total fixed costs−Direct fixed expense for blenders−Direct fixed expense for coffee makers)=$340,000−$184,000−$142,500=$13,500

Hence, the common fixed expense is $13,500.

Answer 21

3.

Expert Solution

Answer 22

3.

Expert Solution

Answer 23

Expert Solution

Answer 24

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

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

Explanation of Solution

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

Explanation of Solution

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

Explanation of Solution

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