Adm2341 Co. manufactures and sells two products (A and B). Projected data for next year are: Product A Product B Sales in units 15,000 10,000 Sale price per unit $100 $160 Variable costs manufacturing 50% of sales 60% of sales Sales commissions 20% of sales 20 % of sales Advertising $100,000 $120,000 Other fixed costs (note 1) $240,000 $240,000 Note 1: Each amount of "Other fixed costs" includes $100,000 fixed general overhead allocated by the Headquarter of Adm2341 Co. to each product. The remaining costs are traceable fixed costs to each product. Adm2341 Co. anticipates no change in the operating result for Product B in the foreseeable future if the product is manufactured. However, Adm2341 Co. is re-examining all of its products and is trying to decide whether or not to discontinue Product B. REQUIRED: 1. Prepare an income statement in Contribution margin format showing the segment margin for each product and operating income for Adm2341 Co. as a whole. 2. Assume that discontinuing the production and sale of Product B will not affect the sale of Product A. If the company drops Product B, what will be the change in annual operating income due to this decision? Would you recommend dropping or not product B? Why? 3. Assume that discontinuing Product B result in an increase of $200,000 in sales of Product A. There will be no increase in advertising expenses. The variable cost structure stays unchanged. If Adm2341 Co. drops Product B, what will be the impact in operating income next year due to this decision? Would you recommend dropping or not product B? Why? 4. Top management of Adm2341 Co. decided not to drop Product B. Assume that the maximum production capacity of Adm2341 Co. is limited to 18,000 Hours and the production of one unit of Product A requires 0.50 hours and one unit of Product B requires 1.25 Hours. The market demand is 15,000 units for Product A and 10,000 units for Product B. a) Is here enough capacity to meet the market demand for each product? b) Compute the contribution margin per hour for each product? c) What is the optimal solution do you suggest for Product A and Product B d) Present the income statement according to your optimal solution. TOTAL SALES TVC CMCM-AVOID TRACEABLE FC SEGMENT MARGIN COMMON FC should not be allocated to move OI X