Louise Bordner has just been appointed manager of Palmroy's Glass Products Division. She has two years to make the division profitable. If the division is still showing a loss after two years, it will be eliminated, and Louise will be reassigned as an assistant divisional man¬

ager in another division. The divisional income statement for the most recent year is given below.

Upon arriving at the division, Louise requested the following data on the division's three products:

She also gathered data on a proposed new product (Product D). If this product is added, it would displace one of the current products; the quantity that could be produced and sold would equal the quantity sold of the product it displaces, although demand limits the max¬ imum quantity that could be sold to 20,000 units. Because of specialized production equip¬ ment, it is not possible for the new product to displace part of the production of a second product. The information on Product D is as follows:

Required:
1. Prepare segmented income statements for Products A, B, and C.
2. Determine the products that Louise should produce for the coming year. Prepare seg¬
mented income statements that prove your combination is the best for the division. By how much will profits improve given the combination that you selected? (Hint: Your combination may include one, two, or three products.)

Transcribed Image Text:

Sales Less: Variable expenses Contribution margin Less: Direct fixed expenses Divisional margin Less: Common fixed expenses (allocated) Divisional profit (loss) $5,350,000 4,750,000 $ 600,000 750,000 $ (150,000) 200,000 $ (350,000)