Please help me answer Diversified Products. Inc., has recently acquired a small

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Please help me answer

Diversified Products. Inc., has recently acquired a small publishing company that offers three books for sale-a cookbook, a travel guide, and a handy speller. Each book sells for $10. The publishing company's most recent monthly income statement is given below. The following additional information is available about the company: Only printing costs and sales commissions are variable; all other costs are fixed. The printing costs (which include materials, labor, and variable overhead) are traceable to the three product lines as shown in the statement above. Sales commissions are 10% of sales for any product. The same equipment is used to produce all three books, so the equipment depreciation cost has been allocated equally among the three product lines. An analysis of the company's activities indicates that the equipment is used 30% of the time to produce cookbooks, 50% of the time to produce travel guides, and 20% of the time to produce handy spellers. The warehouse is used to store finished units of product, so the rental cost has been allocated to the product lines on the basis of sales dollars. The warehouse rental cost is $3 per square foot per year. The warehouse contains 48.000 square feet of space, of which 7,200 square feet is used by the cookbook line. 24,000 square feet by the travel guide line, and 16.800 square feet by the handy speller line. The general sales cost above includes the salary of the sales manager and other sales costs not traceable to any specific product line. This cost has been allocated to the product lines on the basis of sales dollars. The general administration cost and depreciation of office facilities both relate to administration of the company as a whole. These costs have been allocated equally to the three product lines. All other costs are traceable to the three product lines in the amounts shown on the statement above. The management of Diversified Products. Inc., is anxious to improve the publishing company's 5% return on sales. Required: Prepare a new contribution format segmented income statement for the month. Adjust allocations of equipment depreciation and of warehouse rent as indicated by the additional information provided. After seeing the income statement in the main body of the problem, management has decided to eliminate the cookbook because it is not returning a profit, and to focus all available resources on promoting the travel guide. Based on the statement you have prepared, do you agree with the decision to eliminate the cookbook? Yes No Compute the contribution margin ratio for each product. (Round your answers to the nearest whole percent.)

Explanation / Answer

1)

2)

a) No. The cook book should not be eliminated, as it is contributing $17000 to the total incomafter charging the tracable fixed cost

b-1)

Total Company($) Cook-Book ($) travel Guide($) Handy Speller($) Sales 300000 90000 150000 60000 Variable expenses: Printing costs 102000 27000 63000 12000 Sales Commissions (10% of sales) 30000 9000 15000 6000 Total variable Expenses 132000 36000 78000 18000 Contribution 168000 54000 72000 42000 Traceable Fixed Expenses: Depreciation -equipment 9000 2700 4500 1800 (in the ratio 30:50:20) Warehouse rent: 12000 (7200 x $3)/12 1800 (24000x $3)/12 6000 (16800 x $3)/12 4200 Advertising 36000 13500 19500 3000 Salaries 33000 18000 9000 6000 Depreciation-ofice facilities 3000 1000 1000 1000 Total Traceable Fixed Expenses 93000 37000 40000 16000 Contribution after traceable fixed expenses 75000 17000 32000 26000 Common fixed expenses: General sales 18000 General Administration 42000 Total Common Fixed Expenses 60000 Net profit 15000

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