CASE 6-30 Service Organization; Segment Reporting [L06-4] Music Teachers, Inc., is an educational association for music teachers that has 20,000 mem- bers. The association operates from a central headquarters but has local membership chap- s throughout the United States. Monthly meetings are held by the local chapters to discuss ters recent developments on topics of interest to music teachers. The association's journal, Teachers' Forum, is issued monthly with features about recent developments in the field. The association publishes books and reports and also sponsors professional courses that qualify for continuing Chapter 6 professional education credit. The association's statement of revenues and expenses for the cur rent year is presented below. Music Teachers, Inc. Statement of Revenues and Expenses For the Year Ended November 30 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 over expenses $3,275,000 920,000 230,000 280,000 600,000 500,000 320,000 176,000 80,000 38,000 3,144,000 $ 131,000 C. The board of directors of Music Teachers, Inc., has requested that a segmented income state- 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 prior to its preparation. a. Membership dues are $100 per year, of which $20 is considered to cover a one-year subscrip- tion to the association's journal. Other benefits include membership in the association and chapter affiliation. The portion of the dues covering the magazine subscription ($20) should be assigned to the Magazine Subscription Division. b. One-year subscriptions to Teachers' Forum were sold to nonmembers and libraries at $30 per subscription. A total of 2,500 of these subscriptions were sold last year. In addition to sub- scriptions, the magazine generated $100,000 in advertising revenues. The costs per magazine subscription were $7 for printing and paper and $4 for postage and shipping. A total of 28,000 technical reports and professional texts were sold by the Books and Reports Division at an average unit selling price of $25. Average costs per publication were $4 for printing and paper and $2 for postage and shipping. d. 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 stu- 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. e. Salary costs and space occupied by division follow: Space Occupied Salaries (square feet) Membership $210,000 2,000 Magazine Subscriptions 150,000 2,000 Books and Reports 300,000 3,000 Continuing Education 180,000 2,000 Corporate staff 80,000 1,000 Total $920,000 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. Variable Costing and Segment Reporting: Tools for Management Printing and paper costs other than for magazine subscriptions and for books and reports relate to the Continuing Education Division. General and administrative expenses include costs relating to overall administration of the as a whole. The company's corporate staff does some mailing of materials for general administrative purposes. association expenses The expenses that can be traced or assigned to the corporate staff, as well as any other s 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: Prepare a contribution format segmented income statement for Music Teachers, Inc. This statement should show the segment margin for each division as well as results for the associa- tion as a whole. 2. Give arguments for and against allocating all costs of the association to the four divisions. (CMA, adapted)