Case 6-30

Salary f. 302 Chapter 6 3 Assume the company uses absorption costine and a FIFO inventory flow ask F means first in first-out. In other words, it assures that the oldest units in inventore first: a b. Compute the unit product cost for Year 1 Year 2 and Year 3 an income statement for Year Year 2. Year 3 Assume the company uses absorption costing and a LIRO inventory flow assumption - micals last in first-out. In other words, il assume that the newest unus in inventory and 4. first): al Contute the unit product cost for Year 1 Year 2 nd Year 3. Prepare an income statement for Year 1. Year 2, and Year 3. : Segment Reporting Persos The $280. Books and Print relate Music Teachers, Inc. is an educational association for music teachers that has 20.000) members The association operates from a central headquarters hut bas local membership chapters tocough. ments on topics of interest to music teachers. The associacion's magazine, Teachers' Forums out the United States. Monthly meetings are held by the local chapters to discuss tecem develop books und reports and also sponsors professional courses that qualify for continuing professions issued monthly with features about recent developments in the field. The association publishes education credit. The association's statement of revenues and expenses for the current year is per Genc h. asso stene Thc sented below expel Music Teachers, Inc. Statement of Revenues and Expenses For the Year Ended November 30 $3,275,000 1. Required Pre tha Gi 2. Revenues Expenses: Salaries... Personnel costs Occupancy costs. Reimbursement of member costs to local chapters Other membership services Printing and paper. Postage and shipping. Instructors' fees General and administrative Total expenses.......... Excess of revenues aver expenses 920,000 230,000 280.000 600,000 500,000 320,000 176.000 80,000 38.000 3.144,000 $ 131,000 In th a po Hov easi bec the tha sud ad Ur ad The board of directors of Music Teachers, Inc., has requested that a segmented income stau ment be prepared showing the contribution of each segment to the association. The association has four segments: Membership Division, Magazine Subscriptions 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. The 20.000 members of the association pay dues of $100 per year, of which $20 covers a one- year subscription to the Teachers' Forum. Ocher benefits include membership in the associa- tion and chapter allilation. The portion of the dues covering the magazine subscription (520) should be assigned to the Magazine Subscriptions Division b. A total of 2.500 one-year subscriptions to Teachers' Forum were also sold last year to no members and libraries at $30 per subscription. In addition to subscriptions, the journal gener ated $100,000 in advertising revenues. The e costs to produce the Teachers' Forum magazine included $7 per subscription for printing d. A total of 28.00 technical reports and professional texts were sold by the Books and Repetim and paper and $4 per subscription for p e selling price per unit of S2s. Average costs per publication were Sd for printing and paper and 52 for postage and shipping, The association offers a variety of continuing education courses to both members and non members. The one-day courses had a tuition cost of $75 each and were attended by 2,400 stuk dents . A total of 1,760 students took two-day courses at a tuition cost of $125 for each student Outside instructors were paid to teach some courses. in tr Division at an a c. Variable Costing and Segment Reporting: Tools for Management Salary costs and space occupied by division follow: Salaries Membership Magazine Subscriptions. Books and Reports Continuing Education Corporate staff. Total $210,000 150,000 300,000 180,000 80,000 $920,000 Space Occupied (square feet) 2.000 2,000 3,000 2,000 1,000 10,000 Personnel costs are 25% of salaries in the separate divisions 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. Printing and paper costs other than for magazine subscriptions and for books and reports relate to the Continuing Education Division. h. General and administrative expenses include costs relating to overall administration of the association as a whole. The company's corporate staff does some mailing of materials for general administrative 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. It is not necessary to distinguish between variable and fixed costs. Required: 1. Prepare a 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. (CMA, adapted) Appendix 6A: Super- In the discussion of variable costing in this chapter we have assumed that direct labor and L a portion of manufacturing overhead are variable costs that should be attached to products. However, these assumptions about cost behavior may not be true. For example, it may be easier and more accurate to assume that all manufacturing overhead costs are fixed costs a because the variable portion of these costs is insignificant or too difficult to estimate. Fur- nior labor costs (including direct and indirect labor) are more fixed u thermom