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Your boss read a recent magazine article about incomestatements, but he was unclear about the differences between atraditional income statement and a contribution margin incomestatement. Explain the difference by: a) presenting a sample formatfor each statement, b) describing the focus of each statement, andc) discussing how and by whom each statement is used.

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Nestor Rutherford
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28 Dec 2018

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Violins- by - Lucy produces student-grade violins for beginningviolin students. The company produced 2,400 violins in its firstmonth of operations. At month-end, 650 finished violins remainedunsold. There was no inventory in work in process. Violins weresold for $117.50 each. Total costs from the month are asfollows:

Data Table:

Direct materials used: $111,400

Direct labor: $60,000

Variable manufacturing overhead: $35,000

Fixed manufacturing overhead: $52,800

Variable selling and administrative expenses: $11,000

Fixed selling and administrative expenses: $13,500

The company prepares traditional (absorption costing) incomestatements for its bankers. Lucy would also like to preparecontribution margin income statements for management use.

Read the requirements:

Gross profit

Contribution margin

Total expenses shown BELOW the GROSS PROFITline

Total expense shown BELOW the CONTRIBUTION MARGINline

Dollar value of ending inventory under absorption costing

Dollar value of ending inventory under variable costing

Which income statement has a higher operating income and by howmuch? Explain.

Music Teacher's Inc. is an educational association for music teachers that has 20,000 members. The association operates from a central HQ but has local membership chapters throughout the US. Monthly meetings are held by the local chapters to discuss recent development on topics of interest to music teachers. The association's journal, Teacher's Forum, is issued monthly with features about recent developments in the field. The association publishes books and reports and also sponsors professional courses that qualify for continuing professional education credit. The association's statement of revenues and expenses for the current year are below: Music Teachers Inc. Statement of Revenue & Expenses for the year ended Nov. 30 Revenues........................................................................$3,275,000 Expenses: Salaries..........................................................................920,000 Personal costs...............................................................230,000 Occupancy costs...........................................................280,000 Reimbursement of member cost to local chapters........600,000 Other member services.................................................500,000 Printing and paper.........................................................320,000 Postage and shipping....................................................176,000 Instuctors' fees ..............................................................80,000 General and admin........................................................38,000 Total Expenses ..............................................................3,144,000 Excess of Revenue over Expenses .............................$131,000 The board of directors of Music Teachers Inc. has requested that a segmented income statement be prepared showing the contribution of each segment to the association. The association has four segments: Membership Division, Magazine Subscription Division, Books and Reports Division, and Continuing Education Division. Mike Doyle has been assigned responsibility for preparing the segmented income statement and he has gathered the following data: a. Membership dues are $100 per year, of which $20 is considered to cover a one year subscription to the association's journal. Other benefits include membership in the association and chapter affiliation. The portion of the dues covering the magazine subscription ($20) should be assigned to the magazine subscription division. b. One year subscription to the Teacher's Forum were sold to members and libraries at $30 per subscription. A total of 2,500 of these subscriptions were sold last year. In addition to subscriptions, the magazine generated $100,000 in advertising revenue. The cost per magazine subscription were $7 for printing and paper and $4 for postage and shipping. c. A total of 28,000 technical reports and professional texts were sold by the books and reports division at an average unit selling price of $25. Average costs per publication were $4 for printing and paper and $2 for postage and shipping. d. The association offers a variety of continuing education courses to both members and non members. The one day course had a tuition cost of $75 each and were attended by 2,400 students. A total of 1,760 studentes took two day courses at a tuition cost of $125 for each student. Outside instructors were paid to teach some courses. e. Salary costs and space occupied were as follows: Salaries Space Occupied (sq. ft.) Membership................. $210,000 2,000 Magazine Subscription..150,000 2,000 Books and reports ........300,000 3,000 Continuing education.....180,000 2,000 Corporate staff ..............80,000 1,000 Total ............................$920,000 10,000 Personal costs are 25% of salaries in the seperate division as well as for the corporate staff. The $280,000 in occupancy costs includes $50,000 in rental cost for a warehouse used by the books and reports division for storage purposes. f. Printing and paper costs other than for magazine subscriptions and for books and reports relate to the continuing educaiton division g. General and admin expenses relate include costs related to overall admin of the association as a whole. The company's corporate staff does some mailing of materials for general admin purposes. The expenses that can be traced or assigned to the corporate staff, as well as any other expenses that are not traceable to the segments, will be treated as common costs, therefore not necessary to distinguish between variable and fixed costs. REQUIRED 1. Prepare a contribution format segmented income statement for Music Teachers Inc. This statement should show the segment margin for each division as well as results for the association as a whole. 2. Give arguments for and against allocating all costs of the association to the four divisions.

Let us explore the differences between financial and managerialaccounting. Financial accounting is rule-oriented, since theinformation is used to communicate with third parties. Managerialaccounting, on the other hand, is for internal use. Anything goesas long as the information is a valuable tool for decision-makingpurposes, and the benefit of the information exceeds the cost ofaccumulating and analyzing it.

References:

Accounting for Management. (n.d.). Difference Between Financialand Managerial Accounting.

Principlesofaccounting.com. (n.d.). Chapter 17 Multiple ChoiceQuestions.

Required:

Below are some questions for discussion.

How is the purpose of managerial accounting different fromfinancial accounting?

Are more accountants involved in the financial or managerialfunction today?

Comment on the use of a variable costing approach vs. absorptionincome statement. Describe the differences in the presentation anduse of each type of income statement.

How is the concept of "cost of goods sold" different from"contribution margin"?

Explain the contribution margin concept/computation and when touse the information.

Choose one or two topics for further investigation and shareyour knowledge with the class. Provide factual information (notmerely opinions) backed up by current news, examples, or otherinteresting details. Your comments should be in your own words andinclude references in APA format, if applicable

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