Basic Segmented Statement; Activity - Based cost Assignment Vega foods Inc recently purchased a small millo that it intends to operate as one of its subsidiaries. The newly acquired mill offers three products for sale - wheat, cereal, panclabe mix and flour. Each product sells for $10 per package. Materials, labour and other variable production costs are $3.00 per bag of wheat cereal, $4.20 per bag of pancake mix and $1,80 per bag of flour. Sales Commissions are 10% of sales for any product. All other costs are fixed. The mills income statement for the most recent month is given below : Product Line Total wheat Poncale Company Cereal Mix Flower Sales 600,000 200,000 300,000 100,000 Expenses. Materials, Labour 804,000 60,000 126,000 18,000 Sals Commissions 60,000 20,000 30,000 10,000 123,000 48,000 60,000 15,000 Salaries 66,000 34,000 21,000 11,000 equipment deprecia. 30,000 10,000 115,000 5,000 Advertising 2 Warehouse Rent 1 2000 4000 Selling & administrata 90,000 30,000 6 000 2000 30,000 30,000 Total expenses. Operating income (Loss) 585,000 206,000 288,000 919000 115,000 $6,000 $12,000 $9,000 The following additional information about the company is available : G.) The same equipment is used to mill and 3 package all three products. In the above income statement, equipment depreciation has been I allocated on the basis of sales dollars. An - analysis of equipment usage indicates that it is used 40% of the time to make wheat 3 cereal. 50% of the time to make pancake mix, and 10% of the time. ime to make flour. To All three products are starred in the same ware house. In the above income statement the ware house rent has been allocated on the basis of sales dollar. The ware house contains 24,000 square metres of space, of which 8,000 square metres are used for wheat cereal. 14,000 square metres are used for pancake mix and 2000 square feel metres. used for flous. The warehouse space costs the company $0.50 per square in to renti Qurce 3 c) The selling and administrative costs relate to the administration of the company as a whole. In the above income statement, these costs have been divided equally among the three product lines. d) All other costs are traceable to the product lines, Management at Vega foods is anxious to improve the mill's 2.5% margin on sales. Required: 1. prepare a new contribution farmat segmented income statement foi the monthul Adjust the allocations. as required. 2. After seeing the income the income statement in the main body of the problem. management has decided to eliminate the wheat cereal, because it is not returning a profit and to focus all available resources on promoting the pancake mix. a) Based on the statement you have prepared do you agree with decision to eliminate. the wheat cereal? Explain. 6) Based on the statement you agree with decision to focus all available resources on promoting an ample market is available for all 3 produre (Hint - Compute ote the CM ratio for each product) prepared. do u poncake mix ? Assume that