The segmented income statement for XYZ Company for the yearended December 31, 2010, follows:
XYZ COMPANY
Segmented Income Statement
For the Year Ended December 31, 2010 Total
Company Product A Product B Product C Sales $ 1,200,000 $ 600,000 $ 240,000 $ 360,000 Variableexpenses 552,000 300,000 108,000 144,000
Contributionmargin $ 648,000 $ 300,000 $ 132,000 $ 216,000 Fixedexpenses $ 564,000 328,000 92,000 144,000
Operatingincome $ 84,000 $ (28,000 ) $ 40,000 $ 72,000
The company is concerned about theperformance of product A, and you have been asked to analyze thesituation and recommend to the president whether to continue ordiscontinue the product. During your investigation, you discoverthat certain fixed expenses are traceable directly to each productline as indicated here:
Total
Company Product A Product B Product C Direct fixed expenses $204,000 $148,000 $20,000 $36,000
The remaining fixed expenses areconsidered to be corporatewide expenses that have been allocated toeach product line based on sales revenue.
Required:
(a) What will be the effect of thedecision to discontinue product A on operating income?(Input the amount as positivevalue. Omit the "$" sign in your response.)
Operating incomewill by $ for the XYZ Company if it discontinues
Product A.
(b) Assume that product A isdiscontinued. Prepare a segmented income statement for theremaining products. Allocate corporatewide fixed expenses asdescribed. (Input all amounts aspositive values except operating losses which should be indicatedby a minus sign. Omit the "$" sign in yourresponse.)
XYZ COMPANY
Segmented Income Statement
For the Year Ended December 31, 2010 Total
Company Product B Product C Sales $ $ $ Variableexpenses
Contributionmargin $ $ $ Direct fixedexpenses Common fixedexpenses
Operatingincome/loss $ $ $
(c) Starting with the segmented incomestatement, use the information you discovered during yourinvestigation to present a more appropriately designed segmentedincome statement. (Input the amountas positive value. Omit the "$" sign in yourresponse.)
XYZ COMPANY
Segmented Income Statement
For the Year Ended December 31, 2010 Total
Company Product A Product B Product C Sales $ $ $ $ Variableexpenses
Contributionmargin $ $ $ $ Direct fixedexpenses
Segmentmargin $ $ $ $
Common fixedexpenses
$
The segmented income statement for XYZ Company for the yearended December 31, 2010, follows:
| XYZ COMPANY Segmented Income Statement For the Year Ended December 31, 2010 | ||||||||||||
| Total Company | Product A | Product B | Product C | |||||||||
| Sales | $ | 1,200,000 | $ | 600,000 | $ | 240,000 | $ | 360,000 | ||||
| Variableexpenses | 552,000 | 300,000 | 108,000 | 144,000 | ||||||||
| Contributionmargin | $ | 648,000 | $ | 300,000 | $ | 132,000 | $ | 216,000 | ||||
| Fixedexpenses | $ | 564,000 | 328,000 | 92,000 | 144,000 | |||||||
| Operatingincome | $ | 84,000 | $ | (28,000 | ) | $ | 40,000 | $ | 72,000 | |||
| | | | | | | | | | | | | |
The company is concerned about theperformance of product A, and you have been asked to analyze thesituation and recommend to the president whether to continue ordiscontinue the product. During your investigation, you discoverthat certain fixed expenses are traceable directly to each productline as indicated here: |
| Total Company | Product A | Product B | Product C | |||||||
| Direct fixed expenses | $204,000 | $148,000 | $20,000 | $36,000 | ||||||
The remaining fixed expenses areconsidered to be corporatewide expenses that have been allocated toeach product line based on sales revenue. |
| Required: |
| (a) | What will be the effect of thedecision to discontinue product A on operating income?(Input the amount as positivevalue. Omit the "$" sign in your response.) |
| Operating incomewill by $ for the XYZ Company if it discontinues Product A. |
| (b) | Assume that product A isdiscontinued. Prepare a segmented income statement for theremaining products. Allocate corporatewide fixed expenses asdescribed. (Input all amounts aspositive values except operating losses which should be indicatedby a minus sign. Omit the "$" sign in yourresponse.) |
| XYZ COMPANY Segmented Income Statement For the Year Ended December 31, 2010 | |||
| Total Company | Product B | Product C | |
| Sales | $ | $ | $ |
| Variableexpenses | |||
| Contributionmargin | $ | $ | $ |
| Direct fixedexpenses | |||
| Common fixedexpenses | |||
| Operatingincome/loss | $ | $ | $ |
| | | | |
| (c) | Starting with the segmented incomestatement, use the information you discovered during yourinvestigation to present a more appropriately designed segmentedincome statement. (Input the amountas positive value. Omit the "$" sign in yourresponse.) |
| XYZ COMPANY Segmented Income Statement For the Year Ended December 31, 2010 | ||||
| Total Company | Product A | Product B | Product C | |
| Sales | $ | $ | $ | $ |
| Variableexpenses | ||||
| Contributionmargin | $ | $ | $ | $ |
| Direct fixedexpenses | ||||
| Segmentmargin | $ | $ | $ | $ |
| | | | ||
| Common fixedexpenses | ||||
| $ | ||||
| | ||||
